This article first appeared in The Edge Financial Daily on December 7, 2017

Bintulu Port Holdings Bhd
(Dec 6, No transaction)
Maintain market perform with an unchanged target price (TP) of RM6.05: Post-meeting with the management of Bintulu Port Holdings Bhd, we further reaffirmed our view on Samalaju Industrial Port being a longer-term prospect play, with its outlook closely dependent on the growth of Samalaju Industrial Park. Having commenced full operations recently at the start of the second half of 2017 (2HFY17), we expect Samalaju Port to continue operating at a loss for the next two to three years (recall that Samalaju Port recorded a nine-month FY17 [9MFY17] loss before tax of RM22.6 million), with an anticipated break-even only in FY20 or later, after throughput has grown to meaningful levels. In the meantime, the port’s earnings will likely be dragged down by fixed costs such as (i) depreciation and amortisation costs from the RM1.9 billion development; (ii) finance expenses from the RM950 million Sukuk raised to fund the development; and (iii) RM4.7 million per year land lease included in the concession agreement.

Liquefied natural gas (LNG) throughput currently is still the group’s largest revenue contributor (>60%); we see no major growth catalyst for its LNG throughput beyond the short-term. The FY17 to FY18 period should see some mild growth in LNG throughput following the full commencement of Petronas’s LNG Train 9 at the start of 2017, but forward throughput growth will still be heavily reliant on future LNG activities by Petronas in Bintulu.

Talks with authorities for a potential rate hike for the group’s non-LNG operations are long-standing. However, there are no further developments at this moment, with our assumption on its materialisation being at least one to two years away. To date, non-LNG still remains as Bintulu Port’s second largest revenue contributor (>20%). — Kenanga Research, Dec 6