Period  2Q14/1H14

Actual vs. Expectations  2Q14 results came in at RM30.4m, bringing its 1H14 cumulative earnings to RM71.5m. This is within our estimates, at 47.0% of FY14 forecast but is slightly below street estimates at 44.7% of full-year forecast.

Dividends  As expected, an interim single tier dividend of 6.0 sen was declared for the quarter, firming 1H14 total DPS to 12.0 sen, which accounts for 50.0% of our full-year DPS forecast.

Key Result Highlights Core net profit in 2Q14 declined 25.8% QoQ mainly due to: (i) higher effective tax rate (2Q14: 32.9% vs. 1Q14: 21.4%) and (ii) higher staff and maintenance costs QoQ. Meanwhile, the higher effective tax rate in the quarter is caused by higher non-tax deductible expenses and losses from certain subsidiaries, which cannot be set off against taxable profits.

 On a YoY basis, a positive 26.4% YoY change is seen in 2Q14 core earnings underpinned by: (i) higher LNG vessel calls (2Q14: 119 calls vs. 2Q13: 113 calls) and (ii) higher bulking division revenue (+12.8% YoY).

 1H14 net profit grew 18.0% YoY also driven by higher LNG vessel calls and stronger contribution from the bulk division.

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

 For the time being, Bintulu port remains as the major revenue contributor for the group with the completed interim phase of Samalaju port supporting the operations with the bulk division expected to contribute positively to the group.

 Phase 1 of Samalaju is expected to be only completed in 2Q16 and we believe that the earnings could be marginally hit 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 is expected to pick up due to the SCORE initiative.

Change to Forecasts We maintained our forecasts and assumptions.

Rating Upgraded to OUTPERFORM from MARKET PERFORM given recent share price weaknesses.

Valuation  Our DCF-derived TP is increased to RM8.08 from RM7.91 previously as we roll over our valuation to

CY15. Risk factors are maintained. (WACC: 6.5%, g: 1.0%)

Risks to our Call (i) Lower than expected port and bulking division activities and (ii) higher-than-expected CAPEX for the Samalaju port. 

Source: Kenanga