We came away from a Bintulu-Samalaju site visit feeling more reassured of BIPORT’s long-term prospect underpinned by: (i) bulk of CAPEX (83.3% of earmarked RM1.8b CAPEX budget) will be spent on Samalaju port Phase 1 project and (ii) higher certainty of demand in Samalaju Port’s services backed by confirmed industrial investors within the industrial park proximity. We do not foresee any major power supply issues for Samalaju Industrial Park moving forward despite an outage incident which hit Press Metal (PMETAL)’s Mukah smelting plant in 2013 as the Bakun Dam is now operating optimally where any minor failure in the water turbines would not pose any problems to the overall power grid. Meanwhile, we reiterate our OUTPERFORM call on BIPORT with TP of RM8.08 based on DCF valuation.

Key highlights of the visit. Recently, we visited the Samalaju port and PMETAL’s aluminium smelting plant and came away feeling positive on BIPORT. During the visit, the management deliberated to the group of attendees on the following; (i) brief introduction to BIPORT’s business operations and business model, (ii) recent developments of Samalaju Port Phase 1 construction progress coupled with a site visit on the completed Interim Phase of the port, and (iii) potential tariff structure of Samalaju Port in comparison with Bintulu Port.

Contract award for construction of Samalaju port continues. To-date, 5 contracts have been awarded by BIPORT to respective contractors which amounted to c.RM1.5b, accounting for 83.3% of the total earmarked CAPEX for Phase 1 of Samalaju Port. We have gathered from the management that the construction progress of the Phase 1 project is still on track and they have maintained their prescheduled deadline for the project in 2Q16. However, there are indications for the group to raise an additional RM900.0m though sukuk issuance. As of now, it has only managed to secure RM1.1b financing for the project from a mixture of share placement and government grant.

Samalaju Industrial Park to drive demand. BIPORT seeks to diversify its cargo mix which is largely LNG cargoes through investment in Samalaju Port where bulk cargoes are the expected bulk of cargoes. The main driver of the demand for cargo handling services would be from the Samalaju Industrial Park whereby facilities handling bulk materials would be mushrooming in the area in coming years.

Power outage issues not a great concern for now. We also visited the Pmetal’s aluminium smelting facility in the industrial park. Post the visit, we feel positive as the facility is already running at full capacity. With regards to the power supply concerns in the energy-hungry Samalaju Industrial as a power outage disrupted PMETAL’s Mukah plant in 2013 as the turbines in the Bakun Dam failed. However, management has reassured us that the Bakun Dam is currently operating at optimum level now and a failure in one or two turbines would not be a major issue for the industrial area.

Our take post visit. Post the Samalaju and Bintulu visit, we feel more positive about BIPORT overall as Samalaju Port Phase 1 project is on track with the backing of industrial investors driving the demand for bulk cargo handling services. In the long-term, the port will provide robust cash flow streams for BIPORT and also diversification in terms of cargo mix handled by the group which is LNG-heavy at the moment. Meanwhile, we reiterate our OUTPEFORM call on the stock with DCFderived TP of RM8.08.

Source: Kenanga