We think investors have not priced in the certainty of throughput volume from Tenaga’s power plants in 2015 and 2017, which is an additional 6m tonnes of coal combined annually to the current 7m tonnes. With throughput doubling, the FY12-18 projected earnings CAGR of 12.5% will generate MYR63.5m in annual cash flow. We initiate coverage on Integrax with a BUY call and a DCF-derived FV of MYR2.32.
- Malaysia’s deep water port. Integrax is the port operator for the Lekir Bulk Terminal (LBT) and Lumut Maritime Terminal (LMT) – both are located in Lumut, Perak, but are separate from each other. Combined, the terminals handled 10.16m tonnes in FY12, growing at an average 4.5% annually over the past few years. LBT, which is 80%-owned by Integrax, derives its revenue solely from Tenaga Nasional (TNB MK, BUY, FV: MYR10.13), while LMT is a 50%-owned associate, which Integrax earns dividends from.
- 2015 a year to look forward to. Integrax’s FY14 earnings are expected to grow 7% on the back of higher volume contribution from both LBT and LMT. The company is only expected to post double-digit earnings growth in FY15 and FY18, driven by a surge in volume from LBT following the commencement of Tenaga’s new power plants – M4 on 31 March 2015 and M5 on 1 Oct 2017. Each of these plants will boost the annual volume of coal imports by an additional 3m tonnes. From 2012-2018, Integrax could easily register an earnings CAGR of 12.5%.
- High cash with no debt. Integrax is backed by a strong cash position of MYR118m with no borrowings. Assuming its business and client base remain unchanged (we have factored these into our model), we anticipate that its cash pile could balloon to MYR352m by 2018. Capex will be very minimal – at around MYR18m annually, which will be offset by annual dividends of at least MYR11m from LMT.
- Initiate with a BUY. We derive a DCF-based FV of MYR2.32 per share, based on a 10% discount to its DCF, implying a FY14F P/E of 15.5x which we deem reasonable. The established listed container ports in Malaysia are currently trading at 18-21x FY14 P/Es.
Company Background
Brief history. In 1993, the company’s founding shareholders, Halim Rasip Group and the Perak State Economic Development Corporation (PKNP), entered into a public private smart partnership. The partnership, aimed at developing a strategic port to act as a catalyst to stimulate industrial development in Perak, led to the development of Lumut Maritime Terminal SB (LMT) and Lumut Port Industrial Park (LPIP) in 1995, and subsequently, Lekir Bulk Terminal SB (LBT) in 2000. All these three assets in Lumut were subsequently injected into Integrax.
Brief history. In 1993, the company’s founding shareholders, Halim Rasip Group and the Perak State Economic Development Corporation (PKNP), entered into a public private smart partnership. The partnership, aimed at developing a strategic port to act as a catalyst to stimulate industrial development in Perak, led to the development of Lumut Maritime Terminal SB (LMT) and Lumut Port Industrial Park (LPIP) in 1995, and subsequently, Lekir Bulk Terminal SB (LBT) in 2000. All these three assets in Lumut were subsequently injected into Integrax.
Lumut’s port operator. Integrax is the port operator for Lekir Bulk Terminal and Lumut Maritime Terminal, both of which are located in Lumut but are separate from each other. Both ports serve trade within South-East Asia, Myanmar, Bangladesh,
India, Sri Lanka, Pakistan and further towards the Far East, Australia/Pacific, Africa/ Middle East and the EU.
Malaysia’s deepest port with Tenaga as anchor tenant. The Lekir Bulk Terminal (LBT) is 80%-owned by Integrax, with the remaining 20% held by Malakoff. Designed to handle dry bulk and liquid bulk, it is Malaysia’s deepest port by berth depth, with a minimum water depth of 20m at all times. This enables the terminal to accommodate dry bulk cargoes up to 200,000 DWT (deadweight tonnage) carried by Handymax, Panamax and Capemax ships. LBT is capable of accommodating three ships at any one time and is able to carry out ship-to-ship cargo transfer. To handle dry bulk, the port is equipped with two grab ship unloaders with a 1,500 tonne per hour rated capacity feeding two import conveyors. Each conveyor has a 3,800 tonne per hour rated capacity, and is integrated with a transfer station system with alternative routing capability. To handle liquid bulk, the port has pipeline wayleaves and tank areas available for direct vessel-to-plant/tank transfer. Currently, LBT solely serves the intended anchor customer it was built for – Tenaga Nasional Bhd. The port facilitates the unloading of imported coal, bringing in a total of 7m tonnes of coal (as of FY12) to the nearby Sultan Azlan Shah coal -fired power station with the current utilisation rate of 97%.
Meanwhile, Lumut Maritime Terminal (LMT) is 50%-owned by Integrax (less one golden share), with the remaining stake held by Perak Corp, which in turn is 52.9% controlled by PKNP, the strategic partner of Integrax. It is a common user port designed and equipped to handle dry bulk, liquid bulk, containers, and all conventional and project cargo catering to the shipment needs of the Lumut Port Industrial Park. Wholly-owned by LMT, the industrial park is a 1,000-acre industrial estate located next to LMT’s facilities, and about 90% of that landbank has been sold to various industrial users over the years. The industrial zone houses industrial users such as oil and gas, steel fabricators, shipyards and palm oil companies. The depth of LMT’s two berths is much shallower - with a minimum depth of 9m and a maximum of 12m during high tide, with accessibility limited to vessels of not more than 35,000 DWT. It also has a barge berth, capable of handling barges up to 8,000 DWT. Serving a variety of customers, LMT’s FY12 throughput of 3.13m tonnes consisted of dry bulk (limestone, coal, cement, clinker, pet coke and animal feed among others), which made up 63.3% of total throughput, and liquid bulk (palm oil and petroleum products), which comprised 29.1% of throughput. We estimate LMT’s utilisation rate at around 90%.
A privately-owned port. Unlike major port operators in Port Klang and Bintulu Port, which are held by a state port authority, Integrax’s two ports are privately held and hence not subject to any concession terms.
Management. As a port operator with a stable business, we think management plays a crucial role in driving new businesses. CEO Mr Azman Shah Mohd Yusof, who joined the company recently, has vast experience in the corporate sector as well as an entrepreneurial track record. Integrax co-founder Mr Amin Halim Rasip, who has been involved in various businesses as an entrepreneur for more than 27 years, started out as a ship owner and later entered the O&G industry.
Management. As a port operator with a stable business, we think management plays a crucial role in driving new businesses. CEO Mr Azman Shah Mohd Yusof, who joined the company recently, has vast experience in the corporate sector as well as an entrepreneurial track record. Integrax co-founder Mr Amin Halim Rasip, who has been involved in various businesses as an entrepreneur for more than 27 years, started out as a ship owner and later entered the O&G industry.
Shareholders. Tenaga, Integrax’s anchor tenant, is the largest major shareholder with a 22.1% stake. The utility company’s entry as a shareholder in March 2011 brought an end to a management tussle between two founders – brothers Harun and Halim Rasip (then the company’s co-CEOs) – from whom Tenaga bought its stake. Perbadanan Kemajuan Negeri Perak, the state partner of the Lumut port project, owns a 15.7% stake.
Source: RHB
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