We revise Bintulu Ports’ FV to RM6.95 to reflect the dilution impact from its proposed placement of 60m shares to raise MYR399.9m to subscribe for an equity portion in Samalaju Port. We remain positive on the stock although it is still a NEUTRAL, as Samalaju Port’s earnings may take several years to materialize.

Outlook still positive. Bintulu Port reported a decent turnaround in 4QFY12,mainly due to a recovery of its LNG calls. The increasing shipments of construction materials to Samalaju – a growth node under the SCORE development - will keep its ports busy and continue to deliver decent results.

Equity fund-raising. The company announced it will raise proceeds totalling RM399.9m by issuing 60m new shares at the price of RM6.65 per share, to be subscribed by State Financial Secretary Sarawak Incorporation (SFSS) for its equity portion in the RM2.2bn Samalaju Port project.

Details on Samalaju’s capex. Construction of its two-barge berths and a roll on-roll off (RORO) ramp is targeted to be completed by June 2013, before the completion of the port’s first phase in 2016. Bintulu Port is allocating initial capex of RM193m for the two-barge berths, the bulk of which will be used for land reclamation and dredging the water depth deeper from 7m-12m, in order to cater to Panamax vessels. The barge berths will be able to handle capacity of 4m tonnes p.a. Phase 1 of Samalaju’s development, which is expected to complete by 1Q16, will see the addition of three Panamax berths and one barge berth, as well as additional capacity of 14m tonnes. Upon completion of Phase 1, Samalaju will be able to accommodate a combined capacity of 18m tonnes.

Dilutes EPS and DPS. The fund-raising exercise will increase its share base and hence, dilute its EPS and DPS. We are relooking at our valuation model and making the necessary adjustments. Our new RM6.95 FV, down slightly by 2% from the previous RM7.10 FV, is based on a dividend discounted model, at a required rate of return of 7% and terminal growth rate at 2%.

Source RHB