Friday 29 Mar 2024
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NCB Holdings Bhd
(Oct 28, RM2.51)
Maintain Underperform with target price of RM1.83:
Core net loss for the third quarter of financial year 2014 ending December (3QFY14) came in at RM2.3 million, lowering its cumulative net profit for the first nine months (9MFY14) to RM5.3 million, which is below expectations as it only accounted for 29.4% of our FY14 estimate and 19.9% of consensus forecast.

This is mainly due to an unexpected year-on-year (y-o-y) drop in container throughput, worsened by higher depreciation cost relating to the construction of Wharf 8A in Port Klang. No dividend was declared for the quarter.

In 3QFY14, NCB registered a net loss of RM2.3 million against a core net profit of RM2.8 million in the preceding quarter due to tepid container throughput growth quarter-on-quarter (+1.6%) and higher finance cost. When compared on a y-o-y basis, the negative deviation in earnings is even greater with a RM2.3 million loss registered in 3QFY14 compared with RM27.3 million core net profit recorded in 3QFY13. The main culprits for the drastic drop in earnings are: (i) -9.9% y-o-y change in container throughput; and (ii) 7.9% y-o-y increase in expenditure, mainly driven by additional depreciation cost from newly completed Wharf 8A. Cumulative core net profit for 9MFY14 stands at RM5.3 million, which implies a 90.7% y-o-y drop underpinned by a 13.2% drop in container volume predominantly.

Construction is still ongoing in the wharf area of the port with Wharf 16 currently being upgraded to a multipurpose wharf. In addition to the completed Wharf 8A, upgrading works on Wharf 8 will soon be initiated to cater for larger container ships owned by larger shipping lines.

This could unlock the full potential of Wharf 8 and 8A to cater for transhipment cargoes.

Notwithstanding, we remain cautious about the growth outlook for container throughput in the near term as it has registered negative y-o-y growth for the past few quarters and it remains to be seen whether NCB can rebound with full completion of its facilities in the coming years. The logistics division will continue to rationalise its revenue stream and deployment of assets with unprofitable revenue streams to be ceased.

We have decided to cut our earnings forecasts by 75.1% for FY14 and 72.4% for FY15 by: (i) revising our FY14 throughput growth assumption downwards from -11.5% previously to -12.5%; and (ii) upward revision of depreciation assumption from 3.5% to 4.0% of fixed assets for FY14E.

Our discounted cash flow-derived target price is reduced to RM1.83 from RM2.07 based on similar risk factors as a result of the cut in earnings forecasts. — Kenanga Investment Bank Bhd, Oct 28

NCB_theedgemarkets

This article first appeared in The Edge Financial Daily, on October 29, 2014.

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