BIPORT's 9MFY24 results disappointed due to higher-than-expected operating and tax expenses in the 3QFY24. Nonetheless, its 9MFY24 core net profit remained strong, rising 38% YoY driven by strong cargo volumes and lower total finance cost and tax. We reduced our FY24-25F net profit by 7-9%, respectively, reduce our TP by 5.3% to RM6.20 (from RM6.55), but maintain our MARKET PERFORM call.

BIPORT's 9MFY24 core net profit came below expectations at 70% of both our and consensus full-year estimates. The key variance against our forecast came from the higher-than-expected operating and tax expenses. It declared an interim NDPS of 3.0 sen, with a total 9MFY24 NDPS of 10.0 sen, below expectation. Thus, we cut our NDPS estimate to 14.0 sen from 17.2 sen.

YoY, its 9MFY24 revenue rose 10% driven by recovery in both Bintulu Port (+10%) on the recovery in LNG demand from China (which started in 4QFY23), as well as increase in supply base activities and Samalaju Industrial Port (+16%) from a pick-up in cargo volumes from key customers, i.e. PMETAL (OP; TP: RM5.80) and OMH (OP; TP: RM1.80). Its LNG cargo volume inched up 1.9% 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 13.6% 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, manganese and quartz).

Its core net profit soared 38%, more than revenue growth, on lower finance cost and reduced effective tax rate under an interim lease arrangement (from July 23 to Dec 2024) for Bintulu Port.

QoQ, its 3QFY24 revenue rose 3% driven by increase in port activities at both ports, Bintulu Port (+3%) due to higher LNG demand on re-stocking activities before the winter season and Samalaju Industrial Port (+1%) on higher cargo volumes from key customers, i.e. PMETAL and OMH.

Its core net profit, however, fell by a steeper 31% on higher operating expenses (supply base service contract is expected to incur higher operating costs for the next 2-3 years as it ramps up its services offerings, concurrent with the oil & gas exploration projects and it has to personally undertake major repair and maintenance services until a new concession is finalised) and higher effective tax rate at 30.9% vs 24.2% in 2QFY24 due to certain expenses not claimable for tax.

Forecasts. We lowered our FY24F and FY25F net profit by 7% and 9%, respectively, to account for the higher operating and tax expenses.

Valuations. Correspondingly, we reduced our DCF-derived TP by 5.3% to RM6.20 from RM6.55 (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 their hydro power input.

Also, as it stands today, Western countries are still imposing outstanding sanctions on Russian aluminium (that makes up 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 December 2024. 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 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, within a new concession that we are expecting by 1QCY25, and (ii) a global recession hurting heavy industries in Samalaju Industrial Park

Source: Kenanga Research - 25 Nov 2024