Period

3Q15/9M15

Actual vs. Expectations

9M15 net profit of RM85.5m (-19.4%) was below our expectation, matching only 69.0% of full-year forecast. Consensus comparison is unavailable as the stock is not widely tracked. The negative deviation can be attributed to the higher-than-expected operating costs.

Dividends

The Group has proposed a third single-tier interim dividend of 6.0 sen/share, lifting YTD DPS to 16.0 sen which is in line with our forecast.

Key Results Highlights

YoY, 9M15 revenue fell marginally by 1.8% to RM396.3m due to the lower general cargo and container volume. PBT declined 16.4% to RM118.2m mainly due to higher depreciation and amortisation costs (+15.8%) and staff costs (+9.6%). Effective taxation rate is higher at 27.6% as compared to 24.9% in 9M14, which resulted in steeper net profit decline of 19.4% to RM85.5m.

QoQ, 3Q15 revenue was flattish at RM130.8m as volume has yet to pick up due to slower trade activities. PBT managed to surge 37.9% to RM41.2m mainly attributable to lower staff costs (-37.9%) in relation to the payment of performance merits in 2Q15. Similarly, net profit jumped 40.4% to RM29.2m, further aided by the lower effective tax rate of 29.0% (vs. 2Q15: 30.3%).

Outlook

Moving forward, the handling of LNG vessel calls and cargoes is 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

We downgrade our net profit forecasts for FY15EFY16E by 0.2%-4.4% to take into account the higherthan- expected operating costs.

Rating

Maintain MARKET PERFORM

Valuation

Correspondingly, inline with the earnings downgrade, our DCF-derived Target Price is adjusted lower to RM6.81 (from RM7.04) with unchanged parameters (WACC @ 6.5%, g @ 1.0%). The TP implies 23.7x PER FY15E earnings, in line with its 5-year mean. The stock offers potential upside of 3.2% (including dividend yield); thus, we maintain our Market Perform call.

Risks

Delay in construction works of Samalaju Port.

Sector risk: Worse-than-expected LNG demand.

Source: Kenanga Research - 11 Nov 2015