Post-results, we met up with management to gather some key corporate updates. We returned feeling mostly neutral, reaffirming our stance on Samalaju Port being a longer-term prospect play. Meanwhile, LNG vessels and cargo are likely to remain the group’s main revenue contributor. All in, we reiterate our MARKET PERFORM call and TP of RM6.05 given the lack of catalyst with implied dividend yield of 3- 4%.

Samalaju a longer-term prospect. Post-meeting, we further reaffirmed our view on Samalaju Industrial Port being a longer-term prospect play, with its outlook closely dependent on the growth of Samalaju Industrial Park. Having commenced full operations recently at the start of 2H17, we expect Samalaju Port to continue operating at a loss for the next 2-3 years (recall that Samalaju Port recorded 9M17 losses before tax of RM22.6m), with an anticipated breakeven only in FY20 or later, after throughput has grown to meaningful levels. In the meantime, the port’s earnings will likely be dragged down by fixed costs such as (i) depreciation and amortisation costs from the RM1.9b development, (ii) finance expenses from the RM950m Sukuk raised to fund the development, and (iii) RM4.7m per year land lease included in the concession agreement.

LNG throughput seeing no major catalyst. LNG throughput currently is still the group’s largest revenue contributor (>60%); we see no major growth catalyst for its LNG throughput beyond the short-term. FY17-18 should see some mild growth in LNG throughput following the full commencement of Petronas’s LNG Train 9 at the start of 2017, but forward throughput growth will still be heavily reliant on future LNG activities by Petronas in Bintulu.

No developments on rate hikes. Talks for a potential rate hike with authorities for the group’s non-LNG operations have already been longstanding. However, there are no further developments at this moment, with our assumption on its materialisation being at least 1-2 years away. To date, non-LNG still remains as BIPORT’s second largest revenue contributor (>20%).

Reiterate MARKET PERFORM. We kept our DDM-derived TP unchanged at RM6.05, based on assumptions of; (i) 5.2% WACC, and (ii) 1% terminal growth. Despite BIPORT’s valuations are currently trading at near trough levels, with forward PER of 20.3x and PBV of 2.3x, as compared to 5-year means of 22.6x and 2.8x, respectively, we have opted to reiterate our existing call and TP given the lack of any major catalyst. That said, the group is most likely to continue its dividend pay-outs despite not having any fixed policy, with our forecasts implying dividend yield of 3-4% at current levels.

Risks to maintained call include: (i) lower-than-expected losses contribution from Samalaju Port, (ii) sooner-than-expected breakeven from Samalaju Port, (iii) higher-than-forecasted LNG throughput, and (iv) better-than-anticipated dividend pay-out.

Source: Kenanga Research - 6 Dec 2017