Period  4Q14/FY14

Actual vs. Expectations  FY14 core net profit of RM143.3m (unchanged from FY13) was within our expectation, accounting for 97.3% of our forecast but slightly below the consensus estimates by matching only 92.9% of the street’s forecasts. The consensus might have underestimated the amortisation costs which rose 20.8%.

Dividends  The Group has proposed a final single tier DPS of 6.0 sen and special single tier DPS of 3.0 sen for the quarter, bringing FY 14 DPS to 27.0 sen (vs FY13: 30sen), above our expectation of 24.0 sen.

Key Results Highlights  YoY, FY14 operational revenue increase marginally by 4.3%, driven by better performance from the bulking services segment (+13.3%) and robust growth in the port services segment (+3.5%, 92.4% of operational revenue). However, net profit was flattish despite the sales growth due to higher amortisation costs (+20.8%) and higher effective tax rate at 25.7% (vs. 16.2%), while FY13 net profit was aided by one-off recognition of tax benefit amounting to RM14.4m.

 QoQ, 4Q14 revenue rose 11.5% to RM148.8m thanks to better performance of ports division (+12.4%) driven by increase in project cargo while bulking services division reported flattish growth (+1.6%). However, net profit only climbed 7% to RM37.1m due to higher comparative operating expenses and amortisation costs (8.8%) and higher effective tax rate (27.7% vs 20.8%).

Outlook  Management indicated that Bintulu Port with the handling of LNG vessel calls and cargoes will still be the largest revenue contributor for the Group in FY15, supported by the interim phase of Samalaju port despite the challenging outlook of LNG while bulk division is expected to contribute to growth as well.

 Meanwhile, 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.

 Phase 1 of Samalaju is expected to be only completed in 2Q16 and we believe that earnings could be marginally hit initially 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  No changes to forecast. We introduce our FY16E earnings with net profit growth of 19% as Train 9 will be ready by then and we estimate it to contribute an additional 55 LNG vessel calls.

Rating Maintain OUTPERFORM

Valuation  Our DCF-derived Target Price of RM8.08 is maintained with risk factors maintained. (WACC: 6.5%, g: 1.0%). The TP implies 23.3x PER FY15E earnings, in line with +0.5SD 5- year mean, which we think can be justified with the earnings growth potential from Samalaju Port.

Risks to Our Call  Delay in construction works of Samalaju Ports

 Sector risk: Worse-than-expected LNG demand. 

Source: Kenanga