Period

3Q15/9M15

Actual vs. Expectations

9M15 net profit of RM372.3m (-0.03%) is within expectations, matching 70.2% and 70.9% of our inhouse forecast and consensus’ estimates, respectively.

4Q15 numbers should kick in stronger in view of the tariff hike implementation starting November 2015 as well as on seasonality factor.

Dividends

None, as expected.

Key Results Highlights

YoY, 9M15 operational revenue inched up by 4.0% to RM1.2b despite a stronger 8.6% increase in total container volume handled which we think can be attributed to the change in product mix as more volume skewed towards transhipment (from 70.6% in 9M14 to 72.0% in 9M15). Operating profit managed to climb 9.9% to RM531.8m thanks to lower fuel costs (-28.4%). However, net profit growth was flattish at RM372.3m due to higher effective tax rate of 23.1% (from 14.7%).

QoQ, 3Q15 operational revenue grew marginally by 0.6% on the back of higher container throughput volume by 6.0% with the mismatch in increase quantum explained as above. The volume growth was largely helped by a 10.6% up-tick in transhipment volume which negated the impact of a 4.6% decline in gateway volume. Operating profit was similarly flattish at RM178.6m but net profit edged higher by 6.5% to RM130.0m thanks to the lower effective tax rate of 19.9% (from 24.7%).

Outlook

Moving forward, the Group expects its throughput volume to grow by 5%-10% (FY14:12.1%), which is in line with our forecast of 7.8%. The next phase of expansion plan in Container Terminal 8 (CT8) will be fully completed in mid-2017, boosting the current capacity of 11.0m TEUs by 22.7% to 13.5m TEUs. Meanwhile, the Group does not expect the authorities’ decision on the ITA appeal to be given in FY15. As such, we keep our statutory tax rate assumption unchanged at this juncture.

The Group revealed that phase one of the container tariff revisions that entails an average approximate increase of 15%, has been implemented on 1st November 2015. Generally, customers accept the new tariff but requested for more time for transition which explained the delay in implementation date (from Sept 15 to Nov 15). We expect the new rates to boost its earnings growth in 4Q15 while FY16 net profit is forecasted to grow 18.7%, reflecting the full impact of the new tariff.

Change to Forecasts

We made no changes to our earnings forecasts.

Rating

Maintain MARKET PERFORM

Valuation

Our DDM-derived Target Price is kept unchanged at RM4.52, which implied 23.4x FY16E PER.

Risks to Our Call

Upside risks: (i) favourable outcome in ITA application, and (ii) higher-than-expected throughput growth.

Source: Kenanga Research - 16 Nov 2015