Period  2Q13/1H13

Actual vs. Expectations  Bintulu Port Holdings (“BIPORT”) reported net profit of RM24.1m in 2Q13 which brought 1H13 net profit to RM60.5m. Broadly within our expectations, it accounts for 40.6% of our full-year projection. However, it was slightly below the consensus expectations, at only 39.2% of the market full-year projection (RM154.3m).

 We consider the earnings within expectations as the 2Q is a seasonally weaker quarter. Earnings should pick up from 3Q onwards.

Dividends  As expected, a 2nd interim DPS of 7.5 sen was been declared for the quarter.

Key Results Highlights  QoQ, the revenue was down 9.9% (from RM136.9m) mainly due to lower port services and LNG activities which dropped by 9.6% and 12.1% respectively. This is within expectations as BIPORT’s 2Q is seasonally the slowest quarter in the year. Net profit was down 33.8% (to RM24.1m) as it was impacted by payment of performance merits to the staff and infrastructure maintenance costs.

 YoY, excluding the tax credit of RM12m recognized in 2Q12, the 2Q13 net profit was down 14.5% (to RM60.5m) mainly due to a higher expenditure bloated by expenses incurred on additional manpower, maintenance work for port infrastructure, vessels docking and maintenance and depreciation of PPEs.

Outlook  The near-term focus will still be on BIPORT’s terms and conditions of the Samalaju concession agreement which has yet to be formally announced.

 We understand that the construction of the interim phase for the Samalaju Port is underway and expected to be completed by end of 2013. However, this will mean that only 2 berths will be ready and only for handling of construction materials which will not have any material impact to earnings in the near-term.

 Phase 1 of Samalaju Port is expected to be completed only within 2016.

 The catalysts for BIPORT’s earnings are: (i) a higher tariff for cargo handling when the Samalaju Industrial Port starts operation (the initial phase is expected by 2H13); and (ii) higher LNG vessel calls and port services when the ninth LNG train for MLNG is completed by 2016.

Change to Forecasts  Given that the earnings are within our estimates, our forecasts are maintained.

Rating   Maintain UNDERPERFORM

Valuation  Our FY14E based target price of RM7.05 is based on WACC assumption of 6.3%.

 Given that the potential total return is minus 5.4% (9.3% share price depreciation offset by 3.9% dividend yield) we are maintaining our UNDERPERFORM call.

Risks  (i) Lower than expected port and bulking division activities; and (ii) a higher than expected CAPEX for the Samalaju port, which could interrupt BIPORT’s steady cashflows.

Source: Kenanga