This article first appeared in The Edge Malaysia Weekly on July 25, 2022 - July 31, 2022

PORT operator Bintulu Port Holdings Bhd has been gaining traction, with its share price strengthening more than 24% over the past 12 months. It closed last Thursday at RM5.20, translating into a market capitalisation of RM2.39 billion.

The stock hit a 52-week high of RM5.60 in intraday trade on June 1 but has since slipped some 7%. In contrast, the benchmark FBM KLCI hit a 52-week low of 1,411.32 points on July 13, after shedding more than 9% of its value since mid-April.

Volume on the illiquid Bintulu Port has also been higher, with trading picking up over the past few weeks.

However, what is triggering this good run on the stock is not known.

A fund manager from a foreign broking house opines that its gains are capped. “The last time Bintulu Port’s stock hit such levels (RM5.60) was in August 2018. It is a very illiquid counter.

“It’s a decent company, makes between RM100 million and RM150 million [in net profit] a year … Its stock is trading at about 15 times [price-earnings multiples], and although there is no apple to apple comparison (Bintulu Port is a multipurpose port), Westports (a container port operator in Port Klang) is trading at 16 times, so it’s about there.”

Bintulu Port’s top five shareholders held 82.68% of its shares as at end-February this year. As the stock is tightly held, the heightened interest could have triggered the run in its share price.

To recap, in a privatisation exercise at end-1992, Bintulu Port was granted a concession to provide port services for a period of 30 years ending 2022, with an option for a 30-year extension. In September 2014, it obtained approval in principle for the extension of its concession but negotiations, according to its annual report for FY2021, are likely to be finalised only in the fourth quarter of 2022.

Bintulu Port also holds a Petroliam Nasional Bhd (Petronas) Supply Base licence and operates the largest liquefied natural gas (LNG) export terminal in East Asia. While LNG plays a key role in the port operator’s earnings, it also has assets to handle other classes of cargo. It has three general cargo wharves, three LNG jetties, two container terminals equipped with 18 cranes, two edible oil terminals, five multipurpose terminals, more than 35,000 sq m of storage space, and 85 storage tanks with a capacity of 154,600 metric tons, among others.

Bintulu Port also wholly owns Samalaju Industrial Port Sdn Bhd, a purpose-built port catering to Samalaju Industrial Park 60km northeast of Bintulu, which has a 40-year service concession that commenced in 2017, with an option for a 20-year extension.

It is not clear how the talks for Bintulu Port’s concession extension are proceeding.

The Edge did not manage to speak to Bintulu Port officials, but an executive from another local port concession holder says, “All ports have structural issues in the way the concession terms are structured. For example, the lease payments payable by the port operators automatically escalate periodically. Every three years, the leasehold payments increase independently of the underlying business performance or the overall economic environment.

“Ports operations are capital and labour-intensive, equipment is expensive. On the other hand, tariff increases are few and far between or not at all for the entire concession period, and sometimes, the concession is not sufficient to recover all the investments that port operators may put in, and to service the loans from banks. Some of the concessions can be structured better,” he says.

Nevertheless, Bintulu Port has been doing well. For its first quarter ended March 31 this year, it chalked up a net profit of RM41.06 million on the back of RM198.1 million in revenue, which was higher than the year-ago period’s RM24.7 million and RM184.8 million respectively.

In a review of its performance and outlook, Bintulu Port says: “In the year 2022, the group expects to have positive momentum on cargo throughput from LNG, palm oil, container and dry bulk sectors due to the relaxation in the standard operating procedures (SOP) relating to Covid-19 in most countries and also based on the assumption the global economy continues to gradually recover from the effects of the Covid-19 pandemic.”

As at end-March this year, Bintulu Port had cash and cash equivalents of RM746.92 million, while on the other side of the balance sheet, it had long-term debt commitments of RM942.22 million and no current liabilities. As at end-March, it had retained earnings of RM826.44 million.

Amid the concession agreement extension talks, there have been murmurs of a strained relationship between the major shareholders.

Bintulu Port’s largest shareholders are Petronas which has 28.51% equity interest; State Financial Secretary Sarawak (26.67%); Equisar Assets Sdn Bhd, a unit of the Sarawak government (13.04%); Kumpulan Wang Persaraan (Diperbadankan) (9.17%); and pension fund Employees Provident Fund (5.27%). It is worth noting that Petronas’ 51% subsidiary, shipping company MISC Bhd, which is responsible for the transport of LNG from Bintulu Port, also has 2.31% in Bintulu Port.

Relations between Sarawak and Putrajaya have been volatile for a number of years.

In September 2019, Sarawak’s former deputy chief minister, the late Tan Sri James Masing, and a few other politicians suggested that the Sarawak government take over Bintulu Port, after an altercation with the then transport minister Anthony Loke Siew Fook.

The East Malaysian state’s relations with Petronas too have been testy, with Sarawak forming Petroleum Sarawak Bhd or Petros, which took over the supply, sale and distribution of natural gas within Sarawak from Petronas.

Petros has also been asking for a hike in the oil royalty to Sarawak from the current 5%, as the East Malaysian state holds 54% of the total national gas reserves and 29% of the total national oil reserves.

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