• 2Q revenue in line with our forecast; 1H revenue met 49% of our full year forecast
• 2Q NPAT exceeded our forecast by 7%; 1H NPAT met 49% of our full year forecast
• Positive surprise of 3.13 cents maiden interim dividend

The positives

• Turnaround for Port Klang operations. Profitability for the container depot operations has improved, together with contribution from Phase 2 of the warehouse facility.
• First-ever interim dividend declared, but we think it is one-off. The interim dividend was declared after considering operating results for the last 18 months, financial position and capital expenditure requirements for the Jurong Island Chemical Logistics Facility (JICLF). We do not expect an interim dividend to be repeated next year, mainly due to the unusually high quantum – 92% payout over 1H17 EPS – when compared against past full year dividends. Recall that there was no dividend declared during FY16, so we view this as a deferred reward to shareholders.
• Cash generating ability remains resilient. 2Q17 and 1H17 net cash from operating activities grew 24% and 14% YoY respectively, while free cash flow remained positive. However, we expect negative free cash flow in FY18e, during the development of JICLF.

The negatives

• YoY lower revenue from Transportation management segment. It was the only business segment to register lower YoY revenue. The weaker revenue was due to factors such as lower transportation of building materials and lower demand from oil & gas customers.
• 0% OpEx growth out-paced 3.6% revenue growth. NPAT growth was a result of deposit forfeiture and not core earnings growth.

Outlook

The outlook is positive. While there is a warehouse oversupply situation, we see additional earnings coming from the container repair, maintenance and washing JV, which began operations in July. At the same time, the contribution from the Jurong Island Container Depot (JICD) project is not meaningful yet. Further out, we are expecting the JICLF project to drive more than 40% earnings growth in FY19e when it becomes operational. Risk to our view comes mainly from the final completion date of JICLF.

Maintain Buy; slightly lower target price of S$1.12 (previously $1.18)

Some minor adjustments to our forecasts, and FY17e dividend assumption. Following the unusually high interim dividend declared, we now assume no final dividend will be proposed in FY17. We also have a higher WACC of 7.6% (previously: 7.4%). Our target price represents an implied 16.5x FY17e P/E multiple, compared to the Straits Times Index next-twelve-months P/E multiple of 14.7x.