Period

4Q15/FY15

Actual vs. Expectations

FY15 core net profit of RM511.0m (-2.5%) was within expectations by accounting for 96.2% and 97.5% of in-house and consensus’ forecasts, respectively. FY15 core net profit has been adjusted for concession assets written off amounting to RM6.2m.

Dividends

As expected, a second interim DPS of 5.8 sen was declared, lifting FY15 DPS to 11.1 sen (pay-out ratio: 75%), which was within expectations.

Key Results Highlights

YoY, FY15 operational revenue grew 5.0% to RM1.6b thanks to healthy throughput growth of 8.1% to 9.05m TEUs. PBT jumped 12.3% to RM650.1m aided by savings from lower fuel costs, which dipped 26%. However, core net profit declined marginally by 2.5% to RM511.0m as a result of a higher effective tax rate of 22.3% (FY14: 11.5%) due to the expiry of Investment Tax Allowance (ITA).

QoQ, 4Q15 operational revenue increased by 7.0% to RM416.2m, driven by the tariff hike implementation of c.15% effective November 2015 as well as on the back of higher throughput volume (+2.2%). PBT grew only 2.4% to RM166.2m due to higher marketing expenses arising from the tariff revision while other cost components stayed relatively stable. As a result, core net profit rose marginally by 6.2% to RM138.1m

Outlook

We gathered three notable highlights or updates in the analyst briefing; (i) FY16 volume growth was guided at low single digit, (ii) Capex for CT8 was revised to RM1.1b from RM1.0b due to weakened MYR, (iii) ITA was renewed for 3 years (2015-2017) and management guided effective tax rate of 15% in FY16-FY17.

The guidance for volume growth was below our initial expectation of 7% as the Group take into consideration the uncertainties of the formation of shipping alliances, global economy slowdown and the volatility in currency as the challenges in FY16. However, we think that the effect of tariff hike that will be fully reflected in FY16 as well as the renewal of ITA can mitigate the impact of slower volume growth to the earnings.

Change to Forecasts

We lift our FY16E net profit by 2.1% after factoring in the lower growth assumption (from 7% to 4.1%) and lower effective tax rate as per guided by the management. We also roll out our FY17E forecast with volume growth assumption of 4.2%.

Rating

Maintain MARKET PERFORM

Valuation

Our DDM-derived Target Price is downgraded by 5.5% to RM4.27 (from RM4.52), as we apply higher discount rate to reflect the risk in slower volume growth.

Risks to Our Call

Higher-than-expected throughput growth.

Lower-than-expected operating costs.

Source: Kenanga Research - 4 Feb 2016