BIPORT’s 1HFY22 results met expectation with its core PATAMI rising 42% YoY driven largely by throughput growth at the non-LNG segment (largely handled at Samalaju Industrial Port) and a higher blended margin with growing cargoes handled at Samalaju Industrial Port (that commands higher tariffs than Bintulu Port). We like BIPORT for the steady income stream from handling LNG cargoes for Malaysia LNG Sdn Bhd and the growth potential of Samalaju Industrial Port. We fine-tune our net profit forecasts for FY22F (-4%) and FY23F (-1%), tweak our DCF-derived TP down to RM5.90 (WACC: 5.8%; TG: 2%) from RM5.95. Maintain OUTPERFORM.

1HFY22 core profit met our expectation at 56% of our FY22 forecast. It declared second interim NDPS of 3.0 sen in 2QFY22 (unchanged from 2QFY21), bringing 1HFY22 NDPS to 8.0 sen (vs. 6.0 sen in 1HFY21).

1HFY22 turnover rose 6% YoY driven by: (i) a 1.2% increase in overall throughput tonnage to 24.9m tonnes, and (ii) a higher blended tariff with growing cargoes handled at Samalaju Industrial Port (that commands higher tariffs vs. those of Bintulu Port).

In terms of tonnage performance by cargo type, the LNG segment eased 1.4% to 12.3m tonnes due to a slowdown in LNG exports to China amidst intermittent lockdowns, while the non-LNG segment (comprising dry bulk, break bulk, liquid bulk and containerised cargoes) grew 3.9% to 12.6m tonnes driven by the plantation sector (import of fertiliser, export of palm products) and heavy industries in Samalaju Industrial Park (import of alumina, coal and coke, export of aluminium and manganese).

Core PATAMI rose by a larger 42% due to: (i) higher blended margins with growing cargoes handled at Samalaju Industrial Port, partially offset by higher fuel cost (+79%) and a slight increase in staff cost (due to the upward revision in the minimum wage that benefited 21% of its total workforce), and (ii) a lower effective tax rate at 26.0% vs. 33.7%.

We fine-tune down our FY22F LNG throughput tonnage growth assumption to 2% (from 5%) but raise that of non-LNG to 5% (from 3%). For now, we maintain our FY23F throughput tonnage growth assumptions of 3% and 6% for the LNG and non-LNG segments, respectively.

Outlook. Bintulu Port is currently in final discussion with the federal government to extend its concession agreement for another 30 years starting 1st January 2023 with better lease term and tariff structure (last revised in 1993) that is more in line with the seaport industry. Currently, Bintulu Port’s container tariff is 38% lower than that of the newer Samalaju Industrial Port. Meanwhile, Samalaju Industrial Port is poised for sustained double-digit growth, in line with the growth in inbound and outbound cargoes of key players in Samalaju Industrial Park, namely. Press Metal Bintulu, OM Holdings, Pertama Ferroalloys, Sakura Ferroalloys, PMB Silicon, OCIM, and Malaysian Phosphate Additives.

Samalaju Industrial Port has plenty of room to grow in terms of volume of cargoes handled given that its existing capacity of 12m tonnes per annum was only 44% utlilised in FY21 and upon full development, its capacity would rise by another 50% to 18m tonnes per annum.

We like BIPORT for: (i) the steady income stream from handling LNG cargoes for Malaysia LNG Sdn Bhd (that typically makes up close to 50% of its total profits), (ii) it could be poised for a step-up in earnings if Bintulu Port is granted a significant hike in its port tariffs, and (iii) the tremendous growth potential of Samalaju Industrial Port backed by rising investment in heavy industries in Samalaju Industrial Park.

We fine-tune our net profit forecasts for FY22F (-4%) and FY23F (-1%), tweak our DCF-derived TP down to RM5.90 (WACC: 5.8%; TG: 2%) from RM5.95. There is no adjustment to our TP based on ESG for which it is given a 3-star rating as appraised by us (see Page 4). Maintain OUTPERFORM.

Risks to our call include: (i) inability of Bintulu Port to secure an adequate port tariff hike to offset escalating operating cost, and (ii) a global recession hurting heavy industries in Samalaju Industrial Park.

Source: Kenanga Research - 29 Aug 2022