KENANGA: Bintulu Port - BUY - 31 Mar 2008

Bintulu Port – Stable earnings and attractive dividend (Initiating Coverage)



Price: RM6.10

Target Price: RM6.75

Recommendation: BUY



· Bintulu Port is Malaysia’s sole LNG export gateway and the largest LNG export terminal in the world. LNG export is the single largest revenue generator, contributing some 60% to the group’s revenue. Meanwhile, Bintulu Port also houses the largest container terminal in East Malaysia, a multipurpose terminal and acts as a major palm oil export outlet in Sarawak.

· Earnings anchored by LNG with growth from container and palm oil. Company enjoys stable earnings from LNG division given long term contracts of between 15 years – 20 years for Petronas’ LNG exports while growth should be driven by increasing container handling, palm oil storage and exports. Bintulu International Container Terminal is the leading container hub in East Malaysia and has registered an impressive CAGR 27% growth since 2000. Meanwhile, the new vegetable oil division, Biport Bulkers is the only Sarawak port-run firm specialising in edible oil storage and bulking facilities. Though loss making still, Biport Bulkers is however expected to turnaround from 2008 onwards on the back of rising economies of scale and aggressive expansion to double its capacity by 2009.

· Positive outlook for key divisions with LNG output rising by 5% following the de-bottlenecking exercise at MLNG 2 expected by end 2008. Rising hinterland developments driven by Sarawak Corridor should translate into higher container volumes for Bintulu Port while buoyant CPO price is also expected to spur palm oil activities with export on a rising trend.

· Defensive earnings and attractive dividend yield at 8.2% should be enough lure in light of the current volatile market conditions. Strong balance sheet also provides room for capital management with potential capital repayment of up to RM1/share boosting yield up to 24.5%. Initiate coverage with a BUY fair valuing it using a DCF derived target price of RM6.75 based on WACC of 9%.





KENANGA INVESTMENT BANK BERHAD (15678-H)

Research Department