Bintulu Port - 4QFY11 earnings boosted by tax incentives BUY

We maintain our BUY rating on Bintulu Port with our fair value raised to RM8.40/share based on our DCF valuation.

BiPort’s FY11 earnings came in at RM171mil or 18% above our expectation, despite generating lower revenue (-5% YoY). This was due to a strong 4QFY11, whereby earnings jumped by about half to RM60mil. The group declared a final dividend of 7.5 sen/share and a special dividend of 7.5 sen/share, taking total DPS for the year to 30 sen. 

The outperformance can be explained mostly by the tax incentive in the form of investment allowance amounting to RM16mil. We understand that investment allowance rate was 60% in respect of the capex incurred from 2008  to 2012 and there will be a refund of RM33.5mil. The group would continue to utilise the tax incentive until next year.

We believe this is a form of compensation, given that the federal government and BiPort have yet to finalise  the extension on the port lease tenure. Any capex recently committed would be depreciated against a short port tenure which would result in high depreciation charges.

We are estimating a net profit of RM190mil (+11% YoY) and RM195mil (+2% YoY) for FY12F and FY13F, respectively. FY12F earnings would be boosted by the tax incentive although this should taper off in the following year. LNGrelated port charges will continue to be the key driver to its earnings, accounting for about 60% to 70%.

That aside, we believe the interest in the company would be premised on its expected ‘monopoly’ on SCORE’s logistics requirements, via Samalaju Port. Recently, the federal government has approved RM500mil to fund the maiden phase of the new port.

As we have highlighted in our previous report, while Bintulu Port is in a healthy balance sheet position, we believe the group would certainly welcome funding from the government. Note that recent feasibility study mentioned a higher cost of development for the new port – circa RM2bil-RM3bil versus earlier estimates of RM1bil. 

At the outset, i.e. in 2013, there could be at least 5 million tonnes of raw materials to be required by 10 out of 17 confirmed investors at the Samalaju Industrial Park. This is more than double our conservative base case assumption of 2mil tonnes throughput.   

Source: AmeSecurities