3Q17 came in within expectations, posting weaker profits on a YoY-basis due to losses from Samalaju Port. We believe the new Samalaju Port is a longer term earnings driver while currently incurring losses at its early phases. Meantime, LNG vessel calls and cargo remain the major earnings contributors to the group. Maintain MARKET PERFORM with unchanged DDM-derived TP of RM6.05.

Results within expectations. 9M17 core net profit (CNP) of RM109.1m were deemed in-line with expectations, coming at 80% and 75% of our and consensus full-year FY17 earnings forecasts, respectively. It announced dividend of 5.0 sen per share, also within expectation, totalling 9M17 dividends to 15.0 sen vs. 18.0 sen per share paid in 9M16.

Quarterly profits dragged by higher expenses. YoY, 3Q17 CNP of RM34.7m was 5% lower from RM36.6m in 3Q16. Despite a 29% improvement in operating revenue to RM178.2m vs. RM138.4m in 3Q16, bottom-line was largely dragged by: (i) new sukuk expense of RM13.4m, and (ii) increased amortisation expenses by RM10.7m, both attributed to Samalaju Industrial Port, coupled with (iii) higher effective tax rate at 29.4% vs. 25.2% in 3Q16. Meanwhile, the improved operating revenue was helped by increased LNG, container, bulk fertiliser volumes and base support services, with 119 LNG vessels calling Bintulu Port in 3Q17 as compared to 109 vessels in 3Q16. YTD, 9M17 CNP rose 2% from 9M16 of RM106.7m, largely helped by the strong performance seen in 1Q17 (recall that 1Q17 saw CNP growing 26%/17% YoY/QoQ), while offset by weaker performances from the other two quarters.

Improved sequentially due to seasonality. On a sequential basis, 3Q17 CNP improved 46% from a seasonally weaker 2Q17, which recorded CNP of RM23.8m. The better results can be attributed to: (i) improved operating revenue by 16% to RM178.2m from RM154.3m, largely due to increased palm kernel expeller/shell, bulk fertiliser, general cargo, container volumes and base support services, (ii) more favourable effective tax rate of 29.4% against last quarter’s 41.3%, while slightly offset by the aforementioned increase in amortisation and sukuk expenses.

Samalaju a longer term contributor. With Samalaju Industrial Port just recently commencing full operations in 2H17, we expect it to be a longer term play, with its outlook closely dependent on the growth of the Samalaju Industrial Park. Having said that, we expect Samalaju Port to incur losses during the early phases, dragged down by fixed costs, such as: (i) depreciation and amortisation costs from the RM1.9b development, (ii) expenses from the RM950m sukuk raised to fund the development, and (iii) RM4.7m per year land lease included in the concession agreement. In the meantime, handling of LNG vessel calls and cargoes at Bintulu Port are still expected to remain as BIPORT’s main earnings contributor.

Maintain MARKET PERFORM, with an unchanged DDM-derived TP of RM6.05, based on the assumptions of (i) 5.2% WACC, and (ii) 1% terminal growth. Likewise, no changes were made to our FY17-18E earnings forecasts. With limited catalysts in the near-term, we maintain our MARKET PERFORM call. Risks to our call includes (i) lower-than-expected losses contribution from Samalaju, (ii) higher-than-forecasted LNG handling volumes, and (iii) higher-than-expected dividend pay-out.

Source: Kenanga Research - 28 Nov 2017