02 May 2012
CIMB Research believes Bintulu Port will be able to sustain dividend payout but limited share price upside due to its modest near-term earnings growth and relatively pricey valuations, target price RM 7.30, 'Hold'
(BIPORT opening stock price today (2.5.2012) was RM 7.05)
Bintulu Port Holdings Bhd’s (Biport) Bintulu Port has an entrenched position as it is the largest container port in East Malaysia and Malaysia’s sole liquified natural gas (LNG) export gateway. It is also an important port for palm oil exports.
Despite its solid business position and an attractive net yield of around 5.3%, we see limited share price upside due to its modest near-term earnings growth and relatively pricey valuations. The stock is also very illiquid. We begin coverage with a hold call and discounted cashflow-based target price of RM7.30 based on a weighted average cost of capital of 8%.
Bintulu Port is the world’s second largest LNG export terminal, after Qatargas’s terminal. A substantial proportion of its revenue is derived from LNG vessel calls, providing it with stable and lucrative earnings over the years. Capacity is a constraint on earnings growth from this division but the business is still expected to generate a sizeable portion of Biport’s earnings.
The huge investments pouring into Sarawak and the entry of several energy-intensive industries will benefit Biport in the medium to long term. The import of raw materials and export of finished goods will require port services. Biport has already been asked to develop and manage the new Samalaju Port, located nearby the Samalaju Industrial Park where several huge projects are currently under construction.
While the Samalaju Port will require substantial capex in the early years, management is committed to paying at levels similar to 2011. Last year, Biport declared a quarterly interim net dividend of 7.5 sen and a final net dividend of 7.5 sen, bringing total net dividends to 37.5 sen. We believe that it will be able to sustain this amount as it is generating healthy cashflow each quarter. As far as we know, there are no intentions to raise this dividend figure.
As Sarawak Corridor of Renewable Energy (Score) projects are still in progress, we see limited growth for Biport’s earnings in the next one to two years. Projects at Score will take several years to complete and reach full production capacity. The construction of the Samalaju Port will also take several years to complete, limiting Bintulu Port’s ability to handle large amounts of cargoes.