BIPORT (FV RM7.10 - NEUTRAL) FY11 Results Review: Margins Down

Bintulu’s FY11 earnings may have come in within our and consensus forecasts, but we wish to point out that the company has made several restatements of its accounts to comply with several new accounting rules. While revenue was higher as expected given the higher LNG cargo volume generated, margins shrank some 40bps as the non cargo business incurred higher operation costs as its volume has yet to reach the level at which it can achieve economies of scale. We maintain our earnings and NEUTRAL call, with a higher FV of RM7.10. 

Incorporating  new accounting standards.  Due to the adoption of new accounting standards, there is no q-o-q earnings comparison given that the company had to restate its concession-related assets although we reckon that its earnings are deemed in line. Bintulu Port’s 4QFY11 revenue grew 6.17% y-o-y on higher non LNG cargo revenue as we expected, as the company added container capacity. For the full year, operating revenue grew 6%, in line with our expectations.

Margins take the cut. Due to the growing revenue from non LNG cargo for which the margins are not as lucrative as those for LNG, Bintulu Port saw margins contract by an estimated 40bps, as higher staff and operational maintenance costs also took a bite. We see this as the trend moving forward until it achieves economies of scale upon hitting a higher volume handled.

Waiting for Samalaju.  Management has yet to finalize the long-drawn ongoing discussions to operate Samalaju Port and its ownership structure, Currently, it has yet to determine the funding for this venture, but indications point to possible fund raising through the debt market. As of now, negotiations for lower lease rental as well as lower berthing tariff hike for its LNG tankers are still pending.

Dividends.  Bintulu Port announced a final dividend of 15 sen (marginally above our estimates), bringing the full year dividends to 37.5 sen (unchanged from 2010), representing a total net yield of 5.3%.

Maintain NEUTRAL.  We maintain our earnings forecast for now, pending full understanding of the new accounting standards. Nonetheless, our DCF based valuation remains unchanged as it captures cash flow. As we roll over our DCF, our FV is adjusted upwards to RM7.10. Maintain NEUTRAL,  although we like the stock for its stable yield.

Source: OSK188