Despite  only  65%  of  FY14  earnings  estimates,  Integrax’s  9M14  core earnings came within our forecast, as we expect volume picking up into 4Q14  to  make  up  the  shortfall.  Maintain  NEUTRAL  and  DCF-derived MYR2.28  TP (4.0% downside).  Volume handled started to pick up at the Lekir  Bulk  Terminal  (up  20.6%  QoQ)  and  is  expected  to  see  a  further 44% boost in FY15 as the M4 power plant commences in Mar 2015. 

Within.  Coming at only 65% of full-year earnings estimates, Integrax’s 9M14  core  earnings  of  MYR25.5m  (QoQ:  +11%,  YoY:  -17%,  YTD: -15.2%) came within our forecasts but below consensus. This is because we  expect  volume  to  pick  up  coming  into  4Q14  to  make  up  the  9M14 shortfall.  Higher-than-expected  depreciation  was also  incurred  in 3Q14, likely from the recent completion of its newly-installed unloaders. 

Outlook.  Volume  handled  has  started  to  pick  up  at  the  Lekir  Bulk Terminal, ie  up 20.6% QoQ and 12.7% YoY,  and is expected to see  a further boost as the M4 power plant commences in Mar 2015. We expect throughputs to grow by 44% in FY15. 

Forecasts. On the higher-than-expected depreciation incurred for 9M14, we have adjusted upwards our deprecation forecasts.  But we have also raised  our  throughput  handled  slightly,  as  we  expect  4Q14  to  see  astronger pik-up. This impact ought to  offset the upward adjustments  on depreciation.  All  in,  there  is  only  a  marginal  change  on  our  earnings estimates.

Developments.  Negotiations  with  potential  new  customers  remainongoing. As it is, Integrax has only one customer, Tenaga Nasional (TNB MK,  BUY,  TP: MYR15.50).  We have only factored in the national utility firm  as  the  only  customer  in  our  estimates.  Any  additional  customerswould be a boost to earnings. 

Maintain  NEUTRAL.  We  maintain  our  NEUTRAL  call  with  our  DCFderived TP unchanged at MYR2.28,  based on a cost of equity of 10.5% on its projected free cash flow to equity. Our  TP  gives an implied FY15FP/E of 12x.

Source: RHB