Period  4Q13/FY13

Actual vs. Expectations Within expectations. BIPORT recorded 4Q13 core net profit (NP) of RM39.3m (-10.1% QoQ, 24.7% YoY), bringing its FY13 core NP to RM143.5m (7.5% YoY) after stripping-off the one-off recognition of tax benefit amounting to RM14.4m; which made up 103.8% and 101.8% of or estimate and the consensus, respectively.

Dividends  As expected, the group declared a final single tier dividend of 7.5 sen/share in 4Q13, which brought the full year dividend to a total of 30.0 sen/share, yielding c.4.0%.

Key Result Highlights YoY, FY13 core net profit registered a healthy growth of 7.5% on the back of (i) improvement in EBIT margins due to lower amortisation of intangible assets and (ii) 4.9% growth in topline driven by higher cargo volume and higher number of LNG vessel calls.

 QoQ, 4Q13 revenue saw a marginal uptick of 3.6%, underpinned by: (i) higher revenue from port services and (ii) higher LNG revenue due to higher vessel calls (4Q13: 129 calls vs. 4Q12: 119 calls). Core net profit, however, is 10.1% lower due to higher depreciation cost leading to lower EBIT margin.

Outlook  According to the management, the throughput contribution from Samalaju port will be insignificant in the near-term but it will provide a throughput contribution amounting to 4.7m MT per annum, possibly in 2016 when the first phase is completed.

 Currently, two companies have commenced operations there with more companies to follow suit next year. However, currently only the interim phase of the port has been completed and it serves as a support hub for Bintulu Port’s cargoes handling.

 On the other hand, Phase 1 of Samalaju is expected to be only completed in 2Q16 and we believe that earnings would be marginally hit in the first year when it commences operations, with breakeven period of c. 2 years at least.

 Overall, we are still positive on the long-term prospects of the project as economic activity in Sarawak picks up driven mainly by SCORE initiative.

Change to Forecasts We maintain our forecasts for now as the numbers from Samalaju port are expected to show in 2016. On top of that, we introduced our FY15 core NP earnings RM169.1m.

Rating We have upgraded our recommendation from

UNDERPERFORM to MARKET PERFORM post revision in our target price.

Valuation  Our FY14E based target price is revised up by 12.0% to RM7.91 from RM7.05 after we factor in the DCF valuation of the Samalaju Port (WACC: 5.1%.with similar risk factors of Bintulu port, capital structure: 46.0% debt & 54.0% equity).

 We have applied a 10.0% discount rate to our DCF valuation to account for project delay risks and cash flow timing risks.

 We have imputed a few assumptions in our Samalaju Port model: (i) revenue/MT to be 60% higher than Bintulu Port for dry bulk and break bulk as guided by the management, (ii) 1st Phase of the project to commence in 2019, and (iii) port concession to end in 2058.

Risks to Our Call

 (i) Lower than expected port and bulking division activities, (ii) a higher-than-expected CAPEX for the Samalaju port, which could interrupt BIPORT’s steady cashflows, and (iii) delays in Samalaju project and delivery of 9th LNG train.

Source: Kenanga