FY16 net profit of RM149.8m came above our expectation (108%). A fourth single-tier interim dividend of 6.0 sen also came within expectation (100%). We upgrade FY17E earnings by 4.0% on slightly higher volume and container charges and introduce FY18E numbers. Upgrade to OUTPERFORM (from MP) and increase TP to RM6.78 (from RM6.72).

FY16 net profit of RM149.8m came in above our expectations at 108%. The better-than-expected results were due to stronger revenue contributions from the handling of LNG, ferro-alloy cargo, general cargo and container segments in the 4Q16, while 3Q16 results were well within our expectation. There are no consensus estimates. A fourth single-tier interim dividend of 6.0 sen was declared, bringing FY16 DPS to 24.0 sen which is spot on with our FY16 estimate of 24.0 sen (4.0% yield).

Result highlights. QoQ, top-line was up by a strong 20.0% due to stronger contributions from LNG, ferro-alloy cargo, general cargo and container segments mostly in 4Q16, which translated into strong bottom-line growth of 17.9% as net margins remained relatively unchanged. YoY-Ytd, top-line improved (+6.6%) due to similar reasons mentioned above. This was on the back of net margin improvements from higher other income (+125%) which allowed bottom-line to increase by 17.5%.

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. Phase 1 of Samalaju Port is expected to be completed by 2Q17, but throughput and earnings contribution is not expected to be significant in the near-term, i.e. FY17-18. However, longer-term prospect hinges on Samalaju as it will potentially stimulate the economic activities in Sarawak on the back of the Sarawak Corridor of Renewable Energy (SCORE) initiative.

Upgrade FY17E earnings by 4.0%. We upgrade our FY17E earnings by 4.0% to RM150.8m on slightly higher volume and container charges and introduce FY18E NP of RM156.6m. Our FY17- 18E are based on modest low to mid-single digit cargo throughput growth assumptions, in line with growth assumptions for other ports under our coverage as we remain conservative due to the lacklustre global outlook.

Upgrade to OUTPERFORM and increase TP to RM6.78 (from RM6.72) on higher earnings. Our DDM-derived TP is based on a higher 10-year MGS of 4.10% (from 4.00%) in line with our applied rate for WPRTS, and a discount rate of 5.0%. Our TP implies a 20.7x PER FY17E earnings, which is on par with WPRTS? FY17E PER of 21.1x, while most positives have been priced in. We are comfortable with our estimates and thus upgrade our call to OP (from MP) as share price has corrected, while dividend yields are compelling at 4.3%, commanding 16.7% total returns at current levels.

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

Source: Kenanga Research - 28 Feb 2017