BIPORT’s 1HFY24 results met expectations. Its 1HFY24 core net profit almost doubled YoY driven by strong cargo volumes and lower finance cost and tax. Meanwhile, the setting up of the new Bintulu Port Authority Sarawak (BPAS) which is under the purview of Sarawak government is on track to be completed by year-end. Barring any further revisions in tariffs structure thereafter, earnings growth in 2025 is likely to be relatively muted. We maintain our forecasts, TP of RM6.30 and MARKET PERFORM call.

BIPORT’s 1HFY24 core net profit met expectations at 59% of both our and consensus full year estimates. It declared an interim NDPS of 4.0 sen, with a total first half NDPS to 7.0 sen on track to meet our full-year forecast of 15.7 sen.

YoY, BIPORT’s 1HFY24 revenue rose 11% driven by recovery in both Bintulu Port (+10%) on the recovery in LNG demand from China (which started in 4QFY23), and Samalaju Industrial Port (+22%) from a pick-up in cargo volumes from key customers, i.e. PMETAL (OP; TP: RM6.35) and OMH (OP; TP: RM1.80). Its LNG cargo volume inched up 3.4% driven by stronger LNG demand from China, Japan and South Korea.

On the other hand, its non-LNG segment (comprising dry bulk, break bulk, liquid bulk and containerised cargoes) rose 16.2% driven by the recovery in plantation throughput (i.e. the import of fertilisers, the export of palm products) as well as higher inbound and outbound cargoes from heavy industries in Samalaju Industrial Park (i.e. the import of alumina, coal and coke, the export of aluminium and manganese).

Its core net profit almost doubled on lower finance cost and reduced effective tax rate under an interim lease arrangement (from July 23 to Dec 2024) for Bintulu Port.

QoQ, 2QFY24 revenue fell 6% on weaker top line performance from Bintulu Port (-8%) due to lower LNG demand, though partially offset by stronger volume throughput at Samalaju Industrial Port (+3%) on higher cargo volumes from key customers, i.e. PMETAL and OMH.

Its core net profit, however, fell by a steeper 13% on higher operating expenses and higher effective tax rate at 23.7% vs 22.7% in 1QFY24.

Forecasts. Maintained.

Valuations. We also maintained our DCF-derived TP of RM6.30 (WACC: 5.5%; TG: 2%). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Outlook. The LNG cargo throughput at Bintulu Port will remain stable with sustained demand from Japan and South Korea and signs of green shoots of recovery from China. Meanwhile, there has been a pick-up in inbound and outbound cargo volumes at Samalaju Industrial Port from its key customers, i.e. PMETAL and OMH. We believe its key customers have an edge over their peers in the international market as their products have low-carbon footprint given the hydro power input. Also, as it stands today, Western countries still imposed outstanding sanctions on Russian aluminium (that makes up c.6% of world aluminium production) and hence will have to look for alternative sources of aluminium supply. On the other hand, Bintulu Port will commence the handling of marine services for Sarawak Petchem's methanol division from the 2HFY24.

Meanwhile, the setting up of the new Bintulu Port Authority Sarawak (BPAS) which is under the purview of Sarawak government is on track to be completed by year-end. Concurrently, Bintulu Port is under an interim lease agreement until Dec 2024 pending the completion of the handover of BPA control. Currently, the Bintulu Port (Dissolution) Bill 2024 has been passed by both House of Representatives and House of Senate before notification in Gazette. At the same time, the new Port Operation Agreement is being drafted. The operations of Bintulu Port operated by BIPORT will not be disrupted during the process of the Sarawak Government’s port authority takeover from the Federal Government

Investment case. We continue to like BIPORT for: (i) its steady income stream from handling LNG cargoes for Malaysia LNG Sdn Bhd (that typically makes up close to 50% of its total profit), (ii) a potential step-up in earnings if Bintulu Port is granted a significant hike in its port tariffs, and (iii) the tremendous growth potential of Samalaju Industrial Port backed by rising investment in heavy industries in Samalaju Industrial Park. Maintain MARKET PERFORM.

Risks to our call include: (i) inability of Bintulu Port to secure an adequate port tariff hike to offset escalating operating cost, and (ii) a global recession hurting heavy industries in Samalaju Industrial Park.

Source: Kenanga Research - 23 Aug 2024