“We value BPort with a DCF approach given its relatively stable income stream and its exposure to Sarawak’s infrastructural expansion play, which would see its importance grow as Borneo’s leading multipurpose port,” said OSK.

OSK also noted BPort’s dividend track record, having distributed over the past few years a dividend in excess of its EPS, at an average payout of 1.15 times over the past three years. BPort has the distinction of being Malaysia’s only liquefied natural gas (LNG) port according to OSK, and began operations in 1983.

“Over the past 16 years, the LNG tonnage handled by Bintulu has grown at a compound average growth rate (CAGR) of 7.5%. The LNG terminal contributes more than 73.5% and 56% of BPort’s total revenue and volume handled respectively. Given the fact that the container division is loss-making, net profit from LNG represents close to 85% of BPort’s total net profit,” said OSK.

OSK explained that in addition to being the gateway for LNG exports, the port also handles conventional cargo through its multipurpose and petrochemical terminals while its container cargo is managed by unit Bintulu International Container Terminal.

“Recently, another wholly owned subsidiary, Biport Bulkers Sdn Bhd, was set up to provide services to the ever-growing palm oil industry in Sarawak, where it is the only company specialising in palm oil storage and functions as the main export outlet for vegetable oils in the state,” said OSK.

BPort’s revenue stream has been growing steadily since 2002 at a six-year CAGR of 8.6%. OSK is expecting revenue and net profit for FY2009 to come in at RM430.4 million and RM132.7 million respectively. In terms of dividend, OSK is expecting a payout of 36.5 sen per share for the current financial year.

Currently BPort’s major shareholders are national oil company Petroliam Nasional Bhd (Petronas) (32.79%) and the State Financial Secretary of Sarawak (30.68%).

Going forward, OSK said that demand for LNG would remain resilient in the long run due to the high demand for natural gas as a primary fuel worldwide.

“BPort’s LNG business is stable and lucrative given its long-term supply contract agreement as well as its favourable berthing rates fetching an estimated RM730,000 to RM750,000 per vessel,” said OSK.

The research house also sees the government’s growth corridor, the Sarawak Corridor of Renewable Energy (SCORE), as a key economic driver for the area.

OSK added however that one of the key risks is a possible downward valuation should its berthing tariff for LNG vessels be reduced.

This article appeared in The Edge Financial Daily, July 23, 2009.