Period  3Q14/9M14

Actual vs. Expectations INTEGRA’s 3Q14 core net profit came (CNP) in at RM9.4m, bringing its cumulative 9M14 CNP to RM26.4m.

 This is below expectations as it only made up 68.2% of our full-year FY14 estimates and 68.0% that of market consensus.

 The main reason behind the result miss is due to higher than expected depreciation cost from addition of new grab-ship unloader.

Dividends  As expected, no dividend was declared for the quarter.

Key Result Highlights 3Q14 core net profit declined 9.0% YoY, mainly due to: (i) lower revenue/MT achieved of RM11.5/MT in 3Q14 from RM12.5/MT in 3Q13 as a result of cessation of fixed capital repayment for the existing contracts, (ii) higher depreciation cost YoY driven by construction of grab ship unloader (SUL3) for new Jetty Terminal Usage Agreement (“JUTA-2”), and (iii) lower contribution from associate on weaker throughput handled in Lumut Maritime Terminal (LMT).

 Net earnings in 3Q14 surged 22.4% QoQ due to (i) seasonal surge in LBT throughput (+20.6%) (ii) lower administrative expenses, and (iii) higher associate earnings contribution.

 Cumulative net profit in 9M14 declined 12.4% YoY on: (i) 2.6% decline in throughput handled in Lekir Bulk Terminal (LBT), (ii) higher depreciation cost, (iii) absence of industrial land sales, and (iv) weaker LMT throughput (-2.1% YoY).

Outlook  TNBM5 deal still undergoing negotiations with TENAGA. INTEGRA is still negotiating the terms and conditions for TNBM5 project. Given their excellent track record in dealing with TENAGA for the past 10 years, a favourable outcome is highly anticipated.

 M4 power plant expected to contribute positively after 4Q14. With the arrival of the new grab ship unloader (SUL3) at LBT, operations are targeted to commence in 2H14. This might help to offset the potential decline in LBT throughput from its existing contracts.

 Still courting VALE. INTEGRA is still in talks with Vale on their level of participation in its project to set up a transhipment hub and pelletization plant in Teluk Rubiah. This could propel INTEGRA to become one of the main bulk transhipment hubs in the region in the future.

Change to Forecasts We have adjusted our depreciation as a percentage of gross fixed assets assumption upwards from 3.0% previously for both FY14 and FY15 to 4.1% to account for higher depreciation rate from completion of SUL3, resulting in 8.9% and 7.2% cuts in our earnings forecast for FY14 and FY15, respectively.

Rating Maintained at MARKET PERFORM

Valuation  We maintained our DCF-derived TP at RM2.41. (WACC: 11.1%, g: 2.0%).

Risks to our Call (i) delay in M4 Power Plant project, (ii) higher-thanexpected operating cost of LBT and LMT, and (iii) further decline in LBT throughput.

Source: Kenanga