Integrax  (INTEG)’s  FY13  earnings  came  in  well  within  estimates.  The flattish FY13 earnings (-0.9%  y-o-y) were largely due to higher operating costs.  With  its  share  price  close  to  our  DCF-derived  MYR2.32  FV,  we therefore downgrade our recommendation to NEUTRAL (from BUY). We opine  that  the  current  share  price  has  already  priced  in  INTEG’s earnings boost from TNB’s upcoming plant in FY15.

• Well within  forecasts.  INTEG reported  a  FY13 net profit of MYR41.3m (-0.9%  y-o-y)  on  the  back  of  MYR93m  revenue  (+2.4%  y-o-y).  Both bottomline and topline were within our and consensus estimates.  During the  period  under  review,  throughput  at  the  Lekir  Bulk  Terminal  (LBT) increased by 9.1% y-o-y.  The flattish earnings were  largely anticipated as INTEG incurred higher operating costs, which consequently led to the drop  in  EBITDA  margins  to  54%  from  57%.  Furthermore,  lower  land sales handled at Lumut Maritime Terminal  (LMT)  also led to the drop in associate contributions (-3.8% y-o-y).
• Forecasts. We make no changes to our earnings forecasts.
• FY15 earnings growth story.  INTEG’s  FY14 earnings are expected to grow 9% on the back of higher volume contributions from both LBT and LMT.  It  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  Nasional  (TNB  MK, BUY, FV: MYR13.24)’s new power plants, ie M4 in March 2015 and M5 in Oct 2017. Each will boost  annual  volume  of  coal  imports  by  an  additional  3m  tonnes.  To facilitate  the  volume  increase  in  FY15,  INTEG  recently  completed  the construction of a new grab  ship unloader,  which is currently undergoing test runs.
• Downgrade to NEUTRAL. With its share price close to our DCF-derived FV  of  MYR2.32,  we  therefore  downgrade  our  call  to  NEUTRAL.  Note that we continue to factor in a 10% discount to our DCF-derived FV  until INTEG  secures  new  clients,  which  is  a  key  catalyst  to  warrant  a nearnings  upgrade  and  FV  upside.  Note,  INTEG  only  has  one  client  at LBT, ie TNB. Discussions with potential new clients remain ongoing.

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SWOT Analysis

Company Profile
Integrax is a port operator in Lumut, Perak. Lekir Bulk Terminal, one of its ports,  is a deepwater port handling the import of coal for Tenaga Nasional's power plants.

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Source: RHB