Despite losses from Samalaju Industrial Port, its FY17 results exceeded expectations as the group’s bottom-line still managed to stay intact, driven by stronger performance from Bintulu Port. Nonetheless, Samalaju is still viewed as a longer-term prospect with breakeven expected in FY20 or beyond as the current prospect is dampened by fixed costs. Maintain MARKET PERFORM with higher TP of RM6.10.

Results exceeded expectations. FY17 core net profit (CNP) of RM153.3m came in 12%/5% higher against our/consensus forecasts due to stronger performance from Bintulu Port. Single-tier dividend of 6.0 sen per share announced is within expectation, but special dividend of 4.0 sen per share is a positive surprise, thus bringing total FY17 dividend to 25.0 sen per share (versus 24.0 sen in FY16).

Full-year results marginally improved. FY17 CNP marginally improved by 2% YoY, driven by strong performance from Bintulu Port, with its PBT contribution jumping 25%. However, this was masked by losses incurred from Samalaju Industrial Port of RM38m. On the group’s operating revenue line, FY17 of RM679.8m improved 17% YoY, driven by 8% revenue growth from Bintulu Port coupled with an additional RM50m revenue contribution from Samalaju Industrial port, which commenced operations in 2H17.

Strong 4Q17 decent revenue growth. YoY, 4Q17 CNP of RM44.1m similarly improved marginally by 2% from higher operating revenue (+12%), dragged by losses from Samalaju Industrial Port of RM16m. Sequentially, 4Q17 CNP jumped 27% QoQ, mainly due to lower effective tax rate of 17.5% (versus 29% in 3Q17), thus normalising higher effective tax rates from the previous quarters of the year. This is also due to improved operational revenue (+5%) from increased cargoes and vessel calls at Bintulu Port.

Samalaju a longer-term play. On the back of the FY17 results, we revised our FY18E earnings by 7%, while also introducing new FY19E numbers. We believe FY18 will still register lower profit compared to FY17, given full-year impact of losses from Samalaju Industrial Port, which has just commenced operations in 2H17. Likewise, we believe Samalaju Industrial Port to be a longer-term prospect, with breakeven expected in FY20 or beyond as its outlook closely dependent on the growth of Samalaju Industrial Park. In the meantime, losses incurred from the port include: (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 in land lease included in the concession agreement.

Maintain MARKET PERFORM. Following the earnings adjustments, we raised our DDM-derived TP to RM6.10 (from RM6.05 previously) based on assumptions of; (i) 5.9% discounting rate, and (ii) 1% terminal growth. Risk to our call includes (i) higher-than-expected dividend payout, (ii) higher-than-expected volumes in Bintulu Port, and (iii) lower-thananticipated losses from Samalaju Industrial Port.

Source: Kenanga Research - 23 Feb 2018