BIPORT’s 1QFY24 results beat expectations. Its 1QFY24 core net profit doubled YoY driven by strong cargo volumes and lower finance cost and tax. We raise our FY24-25F net profit forecasts by 20% and 7%, respectively, lift our TP by 7% to RM6.30 (from RM5.90) but maintain our MARKET PERFORM call.

BIPORT’s 1QFY24 core net profit beat expectations at 38% and 36% of our full-year forecast and the full-year consensus estimate, respectively. The key variance against our forecast came largely from lower-than- expected finance cost and reduced effective tax rate under an interim lease arrangement (from July 23 to Dec 2024) for Bintulu Port.

It declared an interim NDPS of 3 sen, on track to meet our full-year forecast of 15.7 sen.

YoY, BIPORT’s 1QFY24 revenue rose 11% driven by recovery in both Bintulu Port (+9%) due to the recovery in LNG demand from China (which started in 4QFY23), and Samalaju Industrial Port (+22%) from a pick-up in cargo volumes from key customers, i.e. PMETAL (OP; TP: RM6.35) and OMH (OP; TP: RM1.80). Its LNG cargo volume rose 8% driven by stronger LNG demand from China, Japan and South Korea. On the other hand, the non-LNG segment (comprising dry bulk, break bulk, liquid bulk and containerised cargoes) rose 16% driven by the recovery in plantation throughput (i.e. the import of fertilisers, the export of palm products) as well as higher inbound and outbound cargoes from heavy industries in Samalaju Industrial Park (i.e. the import of alumina, coal and coke, the export of aluminium and manganese).

Its core net profit doubled on lower finance cost and reduced effective tax rate under an interim lease arrangement (from July 23 to Dec 2024) for Bintulu Port.

QoQ, BIPORT’s 1QFY24 revenue decreased by 4% on weaker top line performance from both Bintulu Port (-1%) due to the seasonally lower LNG demand, and Samalaju Industrial Port (-3%) on reduced cargo volumes from key customers, i.e. PMETAL and OMH.

Its core net profit, however, rose by a steeper 16% on lower operating expenses from improved port efficiency.

Forecasts. We raise our FY24-25F net profit forecasts by 20% and 7%, respectively.

Valuations. Correspondingly, we raise our DCF-derived TP by 7% to RM6.30 from RM5.90 (WACC: 5.5%; TG: 2%). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Outlook. The LNG cargo throughput at Bintulu Port will remain stable with sustained demand from Japan and South Korea and signs of green shoots of recovery from China. Meanwhile, there has been a pick-up in inbound and outbound cargo volumes at Samalaju Industrial Port from its key customers, i.e. PMETAL and OMH. We believe its key customers have an edge over their peers in the international market as their products have low-carbon footprint given the hydro power input. Also, as it stands today, Western countries still have outstanding sanctions on Russian aluminium (that makes up c.6% of world aluminium production) and hence will have to look for alternative sources of aluminium supply. Meanwhile, Bintulu Port Authority (BPA) is in the process of transferring its control from the Federal government to the Sarawak government. Concurrently, Bintulu Port is under an interim lease agreement until Dec 2024 pending the completion of the handover of BPA control.

Investment case. We continue to like BIPORT for: (i) its steady income stream from handling LNG cargoes for Malaysia LNG Sdn Bhd (that typically makes up close to 50% of its total profit), (ii) a potential step-up in earnings if Bintulu Port is granted a significant hike in its port tariffs, and (iii) the tremendous growth potential of Samalaju Industrial Port backed by rising investment in heavy industries in Samalaju Industrial Park. Maintain MARKET PERFORM.

Risks to our call include: (i) inability of Bintulu Port to secure an adequate port tariff hike to offset escalating operating cost, and (ii) a global recession hurting heavy industries in Samalaju Industrial Park. 

Source: Kenanga Research - 31 May 2024