Investment Highlights

• We maintain BUY on Bintulu Port (BiPort) with an unchanged DCF-derived fair value (FV) of RM6.50/share (WACC: 9%, TG; 3.5%). Our FV implies a FY24F PE of 23x, a 1.5 standard deviation above its 5-year average PE of 15x. There is no FV adjustment for ESG based on our 3- star rating.

• We believe Bintulu Port will benefit from the prolific projects in Sarawak, which is expected to achieve economic growth between 5% and 6% in 2024F, bolstered by increased development expenditure from state and federal governments.

• This year, Sarawak Petrochem’s methanol project is expected to commence its first shipment in July 2024. The methanol project is estimated to contribute an additional monthly average of 100,000 tonnes of cargo.

• In the same month, BiPort will facilitate the first shipment of Biomass Raw Energy Hot Tropical Grass, adding 10,000 tonnes of liquid bulk volume monthly. The combined total addition to liquid bulk throughput for FY24F is estimated to be 660,000 tonnes, which is our assumption.

• In 2023, liquid bulk accounted for 70% of BiPort's total cargo throughput. Of this, LNG made up 73% of the liquid bulk cargo while the remaining 27% consisted of other liquids like methanol. This indicates that non-LNG liquid cargo throughput is relatively small compared to LNG.

• Bintulu International Container Terminal (BICT) is expected to benefit from additional medical glove shipments from Sarawak Medical Innovation Technology Hub (SMITH) in FY25F. Phase 1A of SMITH is expected to be operational at the end of FY24F.

• BiPort will benefit from Sarawak’s vision for a green hydrogen economy, in line with the National Energy Transition (NETR). SEDC Energy is managing 2 mega hydrogen-focused projects at the Sarawak Hydrogen Hub in Bintulu and Rembus Depot.

• The first project named H2ornbill, is in collaboration with Eneos and Sumitomo Corp. The joint venture is for the development of 2 clean hydrogen-producing plants.

• The second project, H2biscus, involves partnerships with 3 South Korean firms: Samsung Engineering, Posco and Lotte Chemical. The project aims to develop hydrogen derivative facilities.

• H2ornbill and H2biscus projects are expected to produce a combined 240,000 tonnes per annum of green hydrogen, making the Sarawak Hydrogen Hub, one of the largest producers of clean energy globally. The 2 projects are envisaged to be operational in Bintulu Petchem Industrial Park in 2027. They will use BiPort’s shipping equipment and port facilities for export to Japan and South Korea.

• In March 2024, Ministry of Transport (MOT) and Sarawak Ministry of Infrastructure and Port Development (MIPD) signed a memorandum of understanding (MOU) to formalise the takeover of BiPort by the state from federal government. The transition process is expected to be finalised by the end of 2024.

• Recall that Bintulu Port’s concession expired on 31 December 2022 with the option to extend for another 30 years until 2052. The extension has been approved in principle. Ahead of finalising the new concession agreement between BiPort and Bintulu Port Authority, the first interim agreement was signed on 24 Nov 2022 to continue operating Bintulu Port for 6 months from 1 Jan 2023 to 30 June 2023. The second interim period has since been extended by 12 months from 1 July 2023, with a further extension option of 6 months until 31 December 2024.

• In a separate development, the Trans Borneo Railway project linking Sabah, Sarawak, Brunei and Kalimantan, Indonesia is expected to be an economic catalyst for the Borneo region. The Federal government has approved a financial allocation specifically to carry out a feasibility ground study on the routes within Sabah and Sarawak. A tender for a feasibility study on the railway project in Borneo will start in May 2024. However, beyond the feasibility study, there has been no agreement or expressed interest among the governments of Malaysia, Indonesia and Brunei to collaboratively build the Kalimantan-Borneo railway.

• Meanwhile, BiPort is planning to upgrade its port facilities, expected to be implemented in phases over the next 2 years. The tender for the project has been called and the contract is expected to be awarded in 3QFY24. However, the detailed plans of the upgrade and estimated contract value have yet to be revealed.

• Looking ahead, we believe that LNG demand from Japan, South Korea and China would remain positive. In addition, BiPort’s LNG shipments are expected to grow steadily as it exports to new markets such as the Philippines and Kuwait.

• We continue to like BiPort for:
  
  i) potential tariff revisions, which will be implemented in stages from FY25F onwards,
  
  ii) multiple economic development projects in Sabah and Sarawak, which will benefit the group, and
  
  iii) its position as the sole licensed holder to operate a full-fledged oil and gas supply base in Sarawak.

• Key risks are:
  
  (i) delays in the new privatisation agreement,
  
  (ii) macroeconomic and geopolitical uncertainties affecting LNG demand, and
  
  (iii) port congestions which may depress throughput volume.

• The stock currently trades at a decent FY24F PE of 20x, below its 5-year peak of 23x.

Source: AmInvest Research - 17 Apr 2024