9MFY20 Core Net Profit (CNP) of RM191.2m (+35% YoY) came in strong, at 87%/79% of our/consensus full-year estimate. The positive variance from our estimate was due to higher-than-expected port & logistics contribution. As such, we increase our FY20E and FY21E CNP by 19% and 33%, respectively, and elevate TP to RM1.00 (from RM0.695). We have changed our valuation method to Sumof-Parts (SoP) from P/BV valuation to better reflect the value for each segmental business. Upgrade to OP (from MP).

9MFY20 above our expectation. 9MFY20 Core Net Profit (CNP) of RM191.2m (+35% YoY) came in at 87%/79% of our/consensus full-year estimate. The positive variance from our estimate was due to higherthan-expected port & logistics contribution. Interim dividend of 1.5 sen (3QFY19: nil) was declared for the quarter bringing YTD-DPS to 1.5 sen (9MFY19: nil), within expectation.

YoY, 9MFY20 core CNP rose 35% to RM191.2m, thanks to higher contributions from PTP and associates namely Malakoff, (attributed to maiden contribution from newly acquired Alam Flora, absence of losses from KEV and higher earnings from an additional 12% stake in Shuaibah), lower operational and maintenance costs, and higher contribution from its subsidiary, Tanjung Bin Energy Sdn Bhd, following shorter duration of plant outage and settlement agreement reached with its contractor. However, lower volume handled at Northport Malaysia and lower contribution from logistics services (Kontena Nasional) thwarted a potentially better set of results.

QoQ, 3QFY20 core CNP plunged 16% despite registering higher revenue (+13%) mainly due to lower associates (-29%), from weaker contribution by 37.6%-owned associate (Malakoff) of which its 3QFY20 core profit contracted 41% QoQ with revenue dipping 2% over the quarter due to lower energy payment by 7% on planned maintenance at GB3, TBP and TBE. This was further weighed down by higher other operating expenses (+7%) and administrative expenses (+10%). Note that, the higher revenue was from higher work progress in KVMRT-SSP Line and volume handled across all ports especially PTP with ports segment’s profit contribution higher by 32%.

Outlook. The Port and Logistics division has been showing improvement in performance, underpinned by economic recovery momentum since the resumption of the global and domestic trade activities. Currently, its ports portfolio consists of PTP, Johor Port, Northport, Penang Port and Tanjung Bruas Port. That said, we do not discount management continuing their pursuit to acquire additional ports to boost their profile as the largest port operator in the country. We gathered that while its construction order-book is currently at c.RM4.9b (90% from MRT Line 2, expected to be completed by 2022), management is actively bidding for new projects in order to meet its targeted order-book replenishment of c.RM500m p.a.

We increase our FY20E and FY21E CNP by 19% and 33%, respectively, to better reflect stronger Ports & Logistics segment contribution especially with the anticipated full re-opening of economy next year.

Upgrade to OP (from MP) with a higher TP of RM1.00 (from RM0.695). We have changed our valuation method to Sum-of-Parts (SoP) from P/BV valuation (0.22x FY21E BVPS) to better reflect the value for each segmental business.

Risks to our call include: (i) lower-than-expected ports activities, (ii) slower-than-expected construction progress, and lower-than-expected associates’ contribution.

Source: Kenanga Research - 26 Nov 2020