We  think  investors  have  not  priced  in  the  certainty  of  throughput volume  from  Tenaga’s  power  plants  in  2015  and  2017,  which  is  an additional  6m  tonnes  of  coal  combined  annually  to  the  current  7m tonnes.  With  throughput  doubling,  the  FY12-18  projected  earnings CAGR of 12.5% will generate MYR63.5m in annual cash flow. We initiate coverage on Integrax with a BUY call and a DCF-derived FV of MYR2.32.

• Malaysia’s deep water port.  Integrax is the port operator for  the  Lekir Bulk  Terminal  (LBT)  and  Lumut  Maritime  Terminal  (LMT)  –  both  are located in Lumut, Perak,  but are separate from each other. Combined, the  terminals  handled  10.16m  tonnes  in  FY12,  growing  at  an  average 4.5%  annually  over  the  past  few  years.  LBT,  which  is  80%-owned  by Integrax,  derives  its  revenue  solely  from  Tenaga  Nasional  (TNB  MK, BUY,  FV:  MYR10.13),  while  LMT  is  a  50%-owned  associate,  which Integrax earns dividends from.
• 2015 a year to look forward to.  Integrax’s FY14 earnings are expected to grow 7% on the back of higher volume contribution from both LBT and LMT. The company is only expected to post double-digit earnings growth in  FY15 and FY18, driven by a surge in volume from LBT following the commencement of Tenaga’s new power plants  –  M4 on 31 March 2015 and  M5  on  1  Oct  2017.  Each  of  these  plants  will  boost  the  annual volume  of  coal  imports  by  an  additional  3m  tonnes.  From  2012-2018, Integrax could easily register an earnings CAGR of 12.5%.
• High cash with no debt. Integrax is backed by a strong cash position of MYR118m  with  no  borrowings.  Assuming  its  business  and  client  base remain  unchanged  (we  have  factored  these  into  our  model),  we anticipate that its cash pile could balloon to MYR352m by 2018. Capex will be very minimal  –  at around MYR18m annually, which will be offset by annual dividends of at least MYR11m from LMT.
• Initiate with  a BUY. We derive a DCF-based FV of MYR2.32 per share, based  on  a  10%  discount  to  its  DCF,  implying  a  FY14F  P/E  of  15.5x which  we  deem  reasonable.  The  established  listed  container  ports  in Malaysia are currently trading at 18-21x FY14 P/Es.

Company Background
Brief  history.  In  1993,  the  company’s  founding  shareholders,  Halim  Rasip  Group and  the  Perak  State  Economic  Development  Corporation  (PKNP),  entered  into  a public  private  smart  partnership.  The  partnership,  aimed  at  developing  a  strategic port  to  act  as  a  catalyst  to  stimulate  industrial  development  in  Perak,  led  to  the development of Lumut Maritime Terminal SB (LMT) and Lumut Port Industrial Park (LPIP) in 1995, and subsequently, Lekir Bulk Terminal SB (LBT) in 2000. All these three assets in Lumut were subsequently injected into Integrax.

Lumut’s  port  operator.  Integrax  is  the  port  operator  for  Lekir  Bulk  Terminal  and Lumut Maritime Terminal, both of which are located in Lumut but are separate from each  other.  Both  ports  serve  trade  within  South-East  Asia,  Myanmar,  Bangladesh, 
India, Sri Lanka, Pakistan and further towards the Far East, Australia/Pacific, Africa/ Middle East and the EU.

Malaysia’s deepest port with Tenaga as anchor tenant.  The Lekir Bulk Terminal (LBT)  is  80%-owned  by  Integrax,  with  the  remaining  20%  held  by  Malakoff. Designed to handle dry  bulk and liquid bulk, it is  Malaysia’s  deepest port by  berth depth, with a minimum water depth of 20m at all times. This enables the terminal to accommodate dry bulk cargoes up to 200,000 DWT (deadweight tonnage) carried by Handymax, Panamax  and  Capemax  ships. LBT is capable of accommodating three ships at any one time and is able to carry out ship-to-ship cargo transfer. To handle dry bulk, the port is equipped with two grab ship unloaders with a 1,500 tonne  per hour rated capacity feeding two import conveyors. Each conveyor has a 3,800 tonne per  hour  rated  capacity,  and  is  integrated  with  a  transfer  station  system  with alternative routing capability. To handle liquid bulk, the port has pipeline wayleaves and tank areas available for direct vessel-to-plant/tank transfer. Currently, LBT solely serves  the  intended  anchor customer  it  was  built  for  –  Tenaga  Nasional  Bhd.  The port facilitates the unloading of imported coal, bringing in a total of 7m tonnes of coal (as  of  FY12)  to  the  nearby  Sultan  Azlan  Shah  coal -fired  power  station  with  the current utilisation rate of 97%.

Meanwhile,  Lumut  Maritime  Terminal  (LMT)  is  50%-owned  by  Integrax  (less  one golden share), with the remaining stake held by Perak Corp, which in turn is 52.9% controlled  by  PKNP,  the  strategic  partner  of  Integrax.  It  is  a  common  user  port designed  and  equipped  to  handle  dry  bulk,  liquid  bulk,  containers,  and  all conventional  and  project  cargo  catering  to  the  shipment  needs  of  the  Lumut  Port Industrial Park. Wholly-owned by LMT, the industrial park is a 1,000-acre industrial estate located next to LMT’s facilities, and about 90% of that landbank has been sold to various industrial users over the years. The industrial zone houses industrial users such as oil and gas, steel fabricators, shipyards and palm oil companies. The depth of LMT’s two berths is much shallower - with a minimum depth of 9m and a maximum of 12m during high tide, with accessibility limited to vessels of not more than 35,000 DWT.  It  also  has  a  barge  berth,  capable  of  handling  barges  up  to  8,000  DWT. Serving a variety of customers, LMT’s FY12 throughput of 3.13m tonnes consisted of dry bulk (limestone, coal, cement, clinker, pet coke and animal feed among others), which  made up  63.3%  of  total  throughput,  and  liquid bulk  (palm  oil  and  petroleum products), which comprised 29.1% of throughput. We estimate LMT’s utilisation rate at around 90%.

A privately-owned port. Unlike major port operators in Port Klang and Bintulu Port, which are held by a state port authority,  Integrax’s  two ports are privately held and hence not subject to any concession terms. 
Management. As a port operator with a stable business, we think management plays a  crucial  role  in  driving  new  businesses.  CEO  Mr  Azman  Shah  Mohd  Yusof,  who joined the company recently, has vast experience in the corporate sector as well as an entrepreneurial track record. Integrax co-founder Mr Amin Halim Rasip, who has been  involved  in  various  businesses  as  an  entrepreneur  for  more  than  27  years, started out as a ship owner and later entered the O&G industry.

Shareholders.  Tenaga,  Integrax’s  anchor  tenant,  is  the  largest  major  shareholder with  a  22.1%  stake.  The  utility  company’s  entry  as  a  shareholder  in  March  2011 brought an end to a management tussle between two founders – brothers Harun and Halim Rasip  (then the company’s co-CEOs)  –  from whom Tenaga bought its stake. Perbadanan  Kemajuan  Negeri  Perak,  the  state  partner  of  the  Lumut  port  project, owns a 15.7% stake.

Source: RHB