Bintulu Port - 4QFY11 earnings boosted by tax incentives BUY

Stock Name: BIPORT
Company Name: BINTULU PORT HOLDINGS BHD

Research House: AMMB

Price Call: BUY

Target Price: 8.40

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

BiPort's FY11 earnings came in at RM171mil or 18% above ourexpectation, despite generating lower revenue (-5% YoY). This was due to astrong 4QFY11, whereby earnings jumped by about half to RM60mil. The groupdeclared 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 incentivein the form of investment allowance amounting to RM16mil. We understand thatinvestment allowance rate was 60% in respect of the capex incurred from2008  to 2012 and there will be a refundof RM33.5mil. The group would continue to utilise the tax incentive until nextyear.

We believe this is a form of compensation, given that the federalgovernment and BiPort have yet to finalise the extension on the port lease tenure. Any capex recently committedwould be depreciated against a short port tenure which would result in highdepreciation 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 bythe 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 bepremised on its expected 'monopoly' on SCORE's logistics requirements, viaSamalaju Port. Recently, the federal government has approved RM500mil to fundthe maiden phase of the new port.

As we have highlighted in our previous report, while BintuluPort is in a healthy balance sheet position, we believe the group wouldcertainly welcome funding from the government. Note that recent feasibilitystudy mentioned a higher cost of development for the new port ' circaRM2bil-RM3bil versus earlier estimates of RM1bil. 

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

Source: AmeSecurities