Integrax Berhad is the operator for the Lumut Port located off the straits of Malacca, one of the main channels for growing international and ASEAN trades. While being strategically located off the straits, the relatively smaller berth of the Lumut Port and the onshore infrastructure support of Lumut / Perak, as well as competition from Port Klang are key reasons why this port is only meant for smaller vessels and hence comparatively smaller trades. This explains the stagnating revenue growth predicament plaguing this small port operator over the past 5 years and hence placing it below the radar of many big brokerage houses.
Nonetheless, one of the key merits with this company is that being in the port business means businesses are recurrent and cash-generating, hence the reduced likelihood of volatility in revenue and earnings. Due to the fact that its business has not seen much expansion, reinvestment and CAPEX needs are minimal, as evident by the reduced asset base and debts over the past years. This has allowed the company to quietly chalk up its cash hoard and as at 31st March 2013, cash position stands at RM130mil. while debts are minimal (RM4.5mil).
At RM 1.49, the market capitalization of Integrax is approximately RM 450mil and it trades at a discount to its NTA of RM2.00. Stripping the cash holding out, the market currently values its port business at around 7 times FY2012 PE. Not too bad for a consistent cash cow??
Note that the company has also been back on the dividend paying track. After missing in FY2009, the company started to pay 3 cents in FY2010, 16 cents in FY2011, 4.1 cents in FY2012 and 4.5 cents in FY2013. Judging from the trend, it is likely that investors can be assured of at least 4 cents dividend annually, potentially more to come.
Another piece of good news that came in recently is the expansion of its port facilities due to a new agreement entered into with Tenaga Nasional Berhad. This will potentially turn the revenue predicament of the group around and pose it for re-rating in line with higher revenue growth upon commencement of operations under the new agreement. While this will add another RM 90mil to its balance sheet due to construction at the port facility, the group's financial position will still very much remain intact.
Based on recent technical reading, the re-rating will probably kick in soon. First target is around RM 3.00 whereas longer term target of RM 4.50 will very much depend on sustainable revenue and earnings growth down the path. Stay tuned....
P/S : In line with the favorable outlook for the group, Harimau Capital Trader has decided to add Integrax into its portfolio for continued monitoring purposes.
Disclaimer - The information/ opinion above is intended for reference / educational purposes only. The information does not constitute investment advice or an offer to invest and is subject to correction, completion and amendment without notice. Caveat emptor is advised.
