Period

2Q15/1H15

Actual vs. Expectations

1H15 net profit of RM56.3m (-21.2%) was below our expectation, matching only 35.6% of full-year forecast. Consensus comparison is unavailable as the stock is not widely tracked. The negative deviation can be attributed to the lower-than-expected cargo volume.

Dividends

The Group has proposed a second single-tier interim dividend of 4.0sen/share, lifting YTD DPS to 10.0sen.

Dividend

is below our earlier expectation of 24.0sen due to the lower profit.

Key Results Highlights

YoY, 1H15 revenue declined by 1.7% to RM265.5m due to the lower cargo volume, including the LNG and break bulk cargo. PBT dipped 21.1% to RM77.0m on the back of higher depreciation and amortisation recognition in relation to the assets capitalized since 2H15 (+99.5%) as well as higher staff costs (+14.7%). Similarly, net profit declined 21.2% to RM56.3m.

QoQ, 1Q15 revenue declined 1.3% to RM131.9m due to seasonality as 2Qs are usually the weakest quarter. PBT recorded sharp dip of 36.6% to RM29.9m mainly due to higher staff costs (70.6%) as staff bonus was paid during the quarter. Meanwhile, higher effective tax rate of 30.3% (vs 1Q15:24.7%) caused net profit to decline in a greater extent of 41.3% to RM20.8m.

Outlook

Moving forward, the handling of LNG vessel calls and cargoes are still expected to be the largest revenue contributor for the Group, backed by the interim phase of Samalaju port but the LNG volume growth is expected to be subdued due to the weak demand.

Throughput contribution from Samalaju Port is expected to be insignificant in the near future but the completion of Phase 1 of Samalaju by 2Q16 could further improve volume.

The long-term prospects hinge on Samalaju as it will potentially boost and stimulate the economic activities in Sarawak on the back of the Sarawak Corridor of Renewable Energy (SCORE) initiative.

Change to Forecasts

In view of the persistently weak LNG volume, we revised down our volume assumption by 8%-10% while also factoring in higher depreciation and amortisation costs as we were previously too optimistic. As a result, FY15E-FY16E net profits were revised down by 22%- 30%. We also lower our DPS forecasts to 20.0 sen and 22.0 sen (from 24.0 sen both) in FY15E and FY16E.

Rating

Downgrade to MARKET PERFORM from OUTPERFORM

Valuation

Correspondingly with the earnings downgrade, our DCF-derived Target Price was nudged lower to RM7.04 (from RM8.08) with risk factors maintained. (WACC: 6.5%, g: 1.0%). The TP implies 24.6x 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

Delay in construction works of Samalaju Ports

Sector risk: Worse-than-expected LNG demand.

Source: Kenanga Research - 26 Aug 2015