This article first appeared in The Edge Financial Daily, on November 12, 2015.

Bintulu Port Holdings Bhd 
(Nov 11, RM7.10)
Maintain market perform with a lowered target price (TP) of RM6.81: Bintulu Port Holdings Bhd’s nine months financial year 2015 (9MFY15) net profit of RM85.5 million (down 19.4%) was below our expectations, matching only 69% of full-year forecast.

Consensus comparison is unavailable as the stock is not widely tracked. The negative deviation can be attributed to the higher-than-expected operating costs.

The group has proposed a third single-tier interim dividend of six sen per share, lifting year-to-date (YTD) dividend per share (DPS) to 16 sen, which is in line with our forecast.

Year-on-year (y-o-y), 9MFY15 revenue fell marginally by 1.8% to RM396.3 million due to the lower general cargo and container volume. Profit before tax (PBT) declined 16.4% to RM118.2 million mainly due to higher depreciation and amortisation costs (up 15.8%), and staff costs (up 9.6%). 

Effective taxation rate is higher at 27.6% compared with 24.9% in 9MFY14, which resulted in a steeper net profit decline of 19.4% to RM85.5 million.

Quarter-on-quarter (q-o-q), 3QFY15 revenue was flattish at RM130.8 million, as volume has yet to pick up due to slower trade activities. PBT managed to surge 37.9% to RM41.2 million mainly attributable to lower staff costs in relation to the payment of performance merits in 2QFY15. Similarly, net profit jumped 40.4% to RM29.2 million, further aided by the lower effective tax rate of 29% (versus 30.3% in 2QFY15).

Moving forward, the handling of liquefied natural gas (LNG) vessel calls and cargo is still expected to be the largest revenue contributor for the group, backed by the interim phase of Samalaju Port. But the LNG volume growth is expected to be subdued due to the weak demand.

Throughput contribution from Samalaju Port is expected to be insignificant in the near future, but the completion of Phase 1 of Samalaju by 2Q16 could further improve volume.

The long-term prospects hinge on Samalaju as it will potentially boost and stimulate the economic activities in Sarawak on the back of the Sarawak Corridor of Renewable Energy initiative.

We downgrade our net profit forecasts for FY15 to FY16 by 0.2% to 4.4% to take into account the higher-than-expected operating costs.

Correspondingly, in line with the earnings downgrade, our discounted cash flow-derived TP is adjusted lower to RM6.81 (from RM7.04) with unchanged parameters.

The TP implies 23.7 times price-earnings ratio FY15 earnings, in line with its five-year mean. The stock offers a potential upside of 3.2% (including dividend yield). Thus, we maintain our “market perform” call. — Kenanga Research, Nov 11