Bintulu Port Holdings Bhd
(Oct 8, RM7.00)
Re-initiate coverage with hold and target price of RM7.36: We believe Bintulu Port Holdings’ growth prospects have been priced in for the medium term, hinging on the Samalaju Industrial Park, a growth node of the Sarawak Corridor of Renewable Energy (Score). Dividend yield will remain decent at about 4%, representing a 75% to 76% payout of earnings.
Bintulu Port is expected to gear up for Samalaju Port with a proposed sukuk issue, which we estimate to be from RM700 million to RM800 million.
Sooner or later, Bintulu Port will have to deal with a Petroliam Nasional Bhd proposal for the liquefied natural gas (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 the single-largest contributor to revenue, at 67% in the six months to June 2014 ([FY14] - FY13: 69%).
Our FY16F numbers incorporate an additional 2.5 million tonnes of LNG, about 70% of the 3.6 million tonnes additional annual output, which is expected to start coming onstream upon the completion of Train 9 at the Malaysia LNG 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 Bintulu Port has obtained the authority’s nod to have the existing land lease rentals at Bintulu Port reduced.
Bintulu Port is applying to extend the existing 30-year concession, which expires in 2022. The privatisation agreement provides for such an extension option for a 30-year period. 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 against Bintulu Port’s rates.
While management is not at liberty at this juncture to detail the proposals, we expect the anticipated reduction in LNG cargo tariff rates to be made up by increases in the non-LNG cargo rates and reduction in lease rentals. We have incorporated for such a scenario by 2016. We expect earnings growth to be flat for FY14F and Bintulu Port would also be impacted by start-up costs for Samalaju Port.
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. Hold for a dividend yield of approximately 4%.
We re-initiate coverage on Bintulu Port with a “hold” call, at a discounted cash flow (DCF) derived fair value of RM7.36 per share, which implies a price earnings ratio (PER) of 21 times FY15F earnings per share of 36 sen — +1 standard deviation to its three-year forward PER average of approximately 19 times. — AmResearch, Oct 8
This article first appeared in The Edge Financial Daily, on October 9, 2014.