News  Samalaju Industrial Port Sdn Bhd, a wholly-owned subsidiary of BIPORT, has issued a Letter of Acceptance dated 17 March 2014 to Gabungan Binaan Jurutenaga Sdn Bhd for the construction and completion of the HV/LV electrical works and navigation aids system for Phase 1 work of Samalaju Port.

 This contract is worth RM47.5m with a duration of 24 months.

Comments   To date, this is the 4th contract awarded out by BIPORT for the Phase 1 and interim phase of the Samalaju Port development project which brings the total amount of contracts awarded to RM1.3b, which is c.72% of the total estimated cost for the project.

 We are positive on this contract award as this signifies that the project is on track and financing, in our opinion, is not an issue given: (i) the completion of RM600m worth of share placement in FY13 and (ii) available government grant worth RM500m, due to be received from April this year on a staggered basis.

 The company is still in the midst of finalising the details of a sukuk issue which is estimated to be worth RM900m. Management indicated that it might be issued in 2H14.

Outlook  According to the management, the throughput contribution from Samalaju port will be insignificant in the near term and they expect the throughput contribution to amount to 4.9m MT/year, possibly from 2016.

 Currently, two companies have commenced their operations there and more plants of other companies are expected to come on stream next year. However, currently only the interim phase of the port has been completed and it serves as a support for Bintulu Port to handle cargoes.

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

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

Forecast  We maintain our forecasts and assumptions.  

Rating  Maintain at MARKET PERFORM

Valuation  Our DCF-based target price is maintained at RM7.91/share with on WACC of 6.3% and terminal growth rate of 1.0%.

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) delay in Samalaju project and the delivery of 9th LNG train. 

Source: Kenanga