1H16 net profit of RM70.1m came in well within our (51%) and consensus (48%) expectations. A second single-tier interim dividend of 6.0 sen was declared, within expectations (50%). As such, we make no changes to our FY16-17E earnings of RM138.2-145.0m. The handling of LNG vessel calls and cargoes is still expected to be the largest revenue contributor. Maintain MARKET PERFORM and TP of RM7.22.

1H16 net profit of RM70.1m came in within our and consensus expectations at 51% and 48%, respectively. A second single-tier interim dividend of 6.0 sen was declared, bringing 1H16 DPS to 12.0 sen which is in line with our FY16E of 24.0 sen (3.6% yield).

Result highlights. Top line was down QoQ (-3.3%) mainly from lower handling volume of LNG, general cargo and crude oil. This coupled with higher staff cost (+60%) and administrative expenses (+ 23%) dragged down bottom line by 25.4%. YoY-Ytd, top line improved (+5.1%) on higher contributions from palm oil, alumina, container and ferro-alloy cargoes. Additionally, improvements in PBT margins (+3.7ppt) from: (i) higher other income (+132.4%), and (ii) lower amortisation of concession infrastructures, coupled with lower effective tax rates of 23.3% (from 26.9%) resulted in bottom line increasing by 24.5%.

Outlook. Going forward, the handling of LNG vessel calls and cargoes is still expected to be the largest revenue contributor for the Group, backed by palm oil, container, bulk fertiliser and alumina cargoes. Throughput contribution from Samalaju Port is expected to be insignificant in the near future but the completion of Phase 1 of Samalaju by 4Q16 could further improve volume. The long-term prospect hinges 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. Note that we make no changes to our FY16-17E earnings of RM138.2-145.0m.

Maintain MARKET PERFORM and TP of RM7.22. We maintain our DCFderived Target Price of RM7.22. The TP implies 24.0x PER FY16E earnings, close to +0.5 SD over the 5-year mean.

Downside risks to our call include: (i) worse-than-expected LNG demand, and (ii) delay in construction works of Samalaju Port.

Source: Kenanga Research - 29 Aug 2016