AmWatch - Bintulu Port : Medium term growth priced in, uncertain tariff transition HOLD, 8 Oct 2014

STOCK FOCUS OF THE DAY

Bintulu Port : Medium term growth priced in, uncertain tariff transition                 HOLD

We re-initiate coverage on Bintulu Port with a HOLD, at a DCF-derived fair value of RM7.36/share, which implies a PE of 21x FY15F EPS of 36 sen. We believe Bintulu Port’s growth prospects have been priced in for the medium term, hinging on the Samalaju Industrial Park, a growth node of Sarawak’s SCORE. Dividend yield would remain decent at ~4%, representing a 75%-76% payout of earnings. BiPort is expected to gear up for Samalaju Port with a proposed Sukuk issue, estimated to be at RM700mil-RM800mil.

BiPort would have to deal with a Petronas proposal for the LNG cargo tariffs to be reduced. This could result in a substantial reduction in LNG cargo revenue, which would directly affect its bottom line. LNG remains as the single largest contributor to revenue, at 67% in the six months to 30 June 2014. Our FY16F numbers incorporate an additional 2.5mil tonnes of LNG, ~70% of the 3.6mil tonnes additional annual output which is expected to start coming onstream upon the completion of Train 9 at the MLNG complex by early 2016. We assume the additional throughput to come with reduced rates by then.

To mitigate the decline, management has proposed an increase in non-LNG tariffs. We understand that BiPort has obtained the authority’s nod to have the existing land lease rentals at Bintulu Port reduced. BiPort is applying to extend the existing 30-year concession, which expires in 2022. We expect a decision within this year. Management has also proposed a more favourable land lease deal with the state government for the Samalaju port project vs. Bintulu Port’s rates. We expect earnings growth to be flat for FY14F.  A lack of liquidity is a drag on stock performance. We do not rule out corporate measures, such as a bonus issue, to at least make it more affordable to retail investors.

Others :

Economic Update : Exports grew by 1.7% YoY in August

QUICK TAKE

Automobile Sector : Tell-tale signs?         NEUTRAL

NEWS HIGHLIGHTS

Yinson Holdings : Continues to focus on African and Asean regions

Malaysian Airline System : Aer Lingus’ outgoing chief tipped to lead MAS

Banking Sector : RHB and MBSB boards agree to proposed merger

Oil and Gas Sector : Petronas’ LNG project in Canada could be shelved 15 years if tax rebates not given

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