Period  4Q14/FY14

Actual vs. Expectations  Core net profit of RM523.9m (+14.8%) beat our expectation by 10% but came in within the consensus’ by accounting to 105% of the streets’ estimates. The positive deviation can be attributed to the higher-than-expected utilisation rate.

Dividends  DPS of 6.15 sen/share was declared, lifting FY14 pay-out to 11.25sen/share, implying 75% pay-out ratio. The total DPS was slightly higher that our forecasted DPS due to the higherthan- expected earnings.

Key Results Highlights  YoY, FY14 operational revenue rose 11.5% to RM1.5b, mainly driven by the container segment (83% of FY14 revenue) on the back of higher container throughput handled during the year at 8.4m TEU (+12%) while second contributor, the conventional segment was flattish. Meanwhile, core net profit surged 14.8% to RM523.9m thanks to the higher operational revenue and lower effective tax rate at 11.5% (vs FY13: 15.8%).

 QoQ, 4Q14 operational revenue was flattish at RM385.9m (- 1%) as revenue growth in the container division was capped by the optimal utilisation rate. Core net profit, however, jumped 7.6%, aided by lower effective tax rate at 1.7% (vs 3Q14: 9.9%).

Outlook  The Group announced that the request to extend Investment Tax Allowance (ITA) has been rejected by Ministry of Finance. The management guided that effective tax rate should normalize back to statutory tax rates of 24% starting FY15, but the Group is contemplating an appeal.

 The application of tariff hike is still ongoing, according to the management. The Group had gone through the process and submitted all the required paperwork to the Ministry of Transportation. However, no timeline of approval as well as the quantum of the hike was guided.

 Moving forward, the growth would be underpinned by the full contribution of CT7, which boosts the total capacity by 17% or 1.5m TEUs. However, net earnings as well as DPS would face downside pressure with the rejection of ITA extension.

Change to Forecasts  Our FY15E net profit forecast was revised up by 6.9% after we factor in a higher utilisation rate of 80% (from: 77%) for FY15E to reflect the robust growth and we also impute the statutory tax rate of 24% conservatively despite the Group seeking for an appeal for ITA. We take this opportunity to roll out our FY16E forecast, which assume throughput growth of 7.7% and net earnings growth of 10.5%.

 For illustration purpose, the extension of ITA, if successful would boost FY15E-FY16E net profit by 10.5% or RM53.3m- RM59.1m.

Rating Maintain UNDERPERFORM

Valuation  Target Price is revised up to RM3.29 (from RM3.13) postearnings upgrades. Our DDM-based TP (Ke: 7.3%, g: 1.25%) implies 22.1x FY15 which we think can be justified by its dominant position in Port Klang (76% market share). The extension of ITA and thus lower effective tax rate would see TP revised up to RM3.63.

Risks  The extension of ITA

 Port tariff hike 

Source: Kenanga