Period  3Q14/FY14

Actual vs. Expectations 3Q14 core net profit (CNP) came in at RM34.7m, bringing its 9M14 cumulative CNP to RM106.2m. This is slightly below our, and street’s, full-year estimates, at 69.8% and 67.5%, respectively. This is due to higher-than-expected depreciation cost and staff cost.

Dividends  As expected, an interim single tier dividend of 6.0 sen was declared for the quarter; raising 9M14 total DPS to 18.0 sen, which accounts of 75.0% of our full-year DPS forecast.

Key Result Highlights Core net profit in 3Q14 plunged 20.7% YoY mainly due to: (i) higher effective tax rate (3Q14: 20.8% vs 3Q13: 13.1%) caused by the absence of tax allowance in 3Q14, (ii) higher manpower expenses, and (iii) higher depreciation cost.

 Net earnings improved 14.0% QoQ in 3Q14 on: (i) lower staff cost on QoQ basis as 2Q14 includes payments of performance merits, and (ii) higher bulking services revenue.

 In 9M14, core net profit grew marginally by 1.9% mainly driven by YoY growth in cargo volume handled in Bintulu Port and its bulking division despite being marginally offset by higher depreciation and staff costs.

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 in 2016.

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

 Phase 1 of Samalaju is expected to be only completed in Q216 and we believe that earnings could be marginally hit in the first year when it commences its 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 decided to tweak our staff cost assumptions upwards from 14.0% to 14.5% as a percentage of revenue in FY14. On top of that, we also increased our depreciation assumption in FY14E and FY15E by

100bps to account for higher depreciation cost. As a result, our earnings forecast for FY14 and FY15 have been trimmed by 8.3% and 6.8%, respectively.

Rating Maintained at OUTPERFORM.

Valuation  Our DCF-derived TP is maintained with risk factors maintained. (WACC: 6.5%, g: 1.0%)

Risks to our Call

 (i) Lower than expected port and bulking division activities; and (ii) a higher than expected CAPEX for the Samalaju port

Source: Kenanga