We like BIPORT for its: (i) resilient earnings riding on long-term Petronas supply contract and strongly-backed industrials investors, and (ii) strong government-linked shareholdings support (Petronas, and Sarawak State). BUY with a TP of RM5.95 based on a discount rate equivalent to a WACC of 5.8%, and a terminal growth rate of 2%.

BIPORT is looking to reduce reliance on LNG business with no further capacity expansion as hinted by Petronas. BIPORT’s core business will still be spearheaded by LNG business (49% of the group revenue), with future growth to come from Samalaju Industrial Port (20% of the group revenue), and the balance driven by various non-LNG cargo & container, and crude palm oil (CPO) bulking services (6% of the revenue). There are currently three plants, MLNG 1, 2, and 3 with a total capacity of 29.3m tonnes (currently at 80% utilisation) driven by long-term Petronas contracts extending as far as 20 years for the supply of LNG to Taiwanese, Japanese and Korean utilities companies. Petronas is expanding through alternative distribution channel using LNG ISO Tanks (counted as 2 TEUs per tank) through partnership with Tiger Gas Group (China).

Dedicated port for Samalaju Industrial Park. Currently there are six investors including Sakura Ferroalloys, Malaysian Phosphate Additives, Pertama Ferroalloys, OM Holdings, Press Metal Bintulu and OCIM. Recently, another huge investor came in, namely Wenan Steel (Malaysia) SB which is set to become a major steel manufacturer in the ASEAN region. Going forward, these industries will help to drive Samalaju Industrial Port’s growth, with breakeven seen by 2025.

Banking on Sarawak palm oil sector. Under bulking services, BIPORT handles almost 95% of Sarawak palm oil products with an integrated and connected terminal operated by Wilmar Group’s Bintulu Edible Oil, Sime Darby’s Austral Edible Oil, Sarawak Oil Palms’ SOP Edible Oil, Kirana Edible Oil and Borneo Edible Oil utilising all the 154,600 metric tonnes (MT) tank capacity at Biport Bulkers Sdn Bhd.

Vying for a better lease/ tariff term. Bintulu Port are currently in final discussion with the Federal Government to extend its concession agreement for another 30 years starting 1st January 2023 with a better lease term and tariff structure comparable to industry rate. There has been no revision since 1993. Currently, Bintulu Port container tariff are significantly lower by 38% compared to Samalaju Industrial Port.

Source: Rakuten Research - 9 Aug 2022