Bintulu Port Holdings - Second LOA for Samalaju Port Works

News    Yesterday, BIPORT announced that it had issued a Letter of Acceptance (LOA) to Integrated Marine Works Sdn. Bhd. for capital dredging and the Reclamation Package for Phase 1 of the Samalaju Port. 

 The contract sum is RM437m and its duration is staggered at six months, nine months, 12 months and  36 months for Section A, Section B, Section C and Section D respectively. 

Comments   This is the second LOA awarded by BIPORT in relation to works on the Samalaju Port construction. Recall that in Jun-2012, BIPORT initially awarded a RM194m contract to TRC for interim works on the port.

 We are positive on the news as we believe that the contract implies that the Samalaju port construction is proceeding smoothly, of which as at to date, around RM631m has been committed.

 However, given that BIPORT has yet to finalise the terms and conditions of its concession agreement, we are maintaining our forecasts and call at this juncture.

 We believe that the agreement will come around the same time that BIPORT finalises its financing scheme. Recall that in end-2012 it announced its intention to: 1) perform a private placement of up to 15% of its paidup capital to its major shareholders; and 2) issue SUKUK bonds (the exact value of which has not been finalised). 

 We understand that the cost for the interim and Phase 1 of the Samalaju port is c.RM1.8b. Assuming the maximum 15% private placement (c.60m shares) and 10%-discounted price of RM6.31, it would raise cash proceeds of RM380m, leaving another RM1bn to be funded. We believe this will be satisfied partly by the Sukuk issuance that BPORT is eyeing. BIPORT had received a grant of RM500m from the federal government earlier to finance the construction of Samalaju Port. 

Outlook   The catalysts for BIPORT’s earnings are: 1) a higher tariff for cargo handling when the Samalaju Industrial Port starts operation (the initial phase is expected by 2H13) and 2) higher LNG vessel calls and port services when the ninth LNG train for MLNG is completed by 2016.

Forecast   We are maintaining our earnings estimates at this juncture pending further details on its corporate exercises and more information from the management.

Rating   MAINTAIN MARKET PERFORM

Valuation    Our target price is maintained at RM7.18 based on a DCF valuation (WACC: 9.6%).

Risks   (i) Lower than expected port and bulking division activities and (ii) a higher than expected CAPEX for the Samalaju port, which could interrupt BIPORT’s steady cashflows.   

Source: Kenanga