We are positive on Straits Inter Logistics Bhd (“Straits”) partnership with Bintulu Port Sdn Bhd (“Bintulu Port”). Reiterate BUY as we ascribed a target price of RM0.38 based on 14.5x PER FY20 as per its closest related peers on the back of robust earnings growth outlook for the next 2 years.

Straits’s subsidiary Tumpuan Megah Development Sdn Bhd (“TMD”) have executed a bunkering services agreement with Bintulu Port for 3 years commencing 1 August 2019. Bintulu Port is East Malaysia’s largest container port and major oil & gas and LNG hub for Sarawak.

TMD’s with operations spanning across 8 major ports in Malaysia namely Pasir Gudang, Tanjung Pelepas, Johor Bahru, Kuantan, Kemaman, Kuala Terengganu, Labuan and Miri This strategic partnership with Bintulu Port will enhance its coverage to 9 major ports with a fleet of 9 vessels totalling 12m litres fuel capacity.

Straits 1Q19 results saw its revenue surged to RM108.76m compared to RM36.44m in 1Q18 and reported net profit of RM1.35m compared to RM0.63m in 1Q18. This is due to consolidation of the results from their completed acquisition of TMD. Straits has been busy over the past year with the acquisitions of TMD which should propel them into the one of the largest bunkering players in Malaysia and Banle International, HK a growing trader of bunker oil and gateway to China huge market. The recent proposed acquisition of vessel “Antlia” for USD4.7m will allow it to further strengthen its foothold within the burgeoning marine fuel oil segment.

Straits balance sheet remains healthy with 0.32x net gearing despite its aggressive expansion. The acquisitions are earnings accretive where EPS has continued to see accelerated growth, doubling in 2 years notwithstanding the dilution from the issuance of new shares.

Source: Rakuten Research - 27 Jun 2019