NCB Holdings Bhd (Dec 8, RM2.37)
Maintain “underperform” with unchanged target price of RM1.83. Due to intense competition and ageing port infrastructure, NCB has recently suffered declining throughput, which resulted in uninspiring earnings.

In view of that, the company has embarked on restructuring plans involving the refurbishment of Wharf 8A with taller cranes to handle larger containerships. However, to maximise its full potential, NCB has to refurbish Wharf 8 (to be completed in 2016), which is located next to Wharf 8A to enable sufficient wharf length for the positioning of larger ships. Given ship sizes are expected to grow larger moving forward as ship owners have flocked to invest in larger ships to enjoy higher economies of scale, we believe the intention by NCB is rational, but we opine headwinds will still be present in the near-term as depreciation charges are expected to kick in as a result of higher capital expenditure.

Post MMC Corp’s acquisition of 15.7% stake in NCB from MISC, the attendees of the briefing were keen to gather more information on the deal with regards to the main intention of MMC Corp of this acquisition. However, the management is also unsure of MMC Corp’s ultimate intention at the moment and it is too premature to discuss further actions by the acquirer on NCB for the time being.

 Moreover, they have indicated that they could possibly capitalise on PTP’s robust client network and connectivity to add more value services for its clients through synergies. In our view, potential synergies from this deal remain vague until further actions are carried out by MMC Corp in the future.

While we feel satisfied that the management has put several measures in place to counter the issues it is facing, we maintain our slightly negative view on the company as the road to recovery remains challenging and uncertain, moving forward. Therefore, we did not factor in any potential recovery in throughput from its port refurbishment plans to stay on the conservative side. — Kenanga Research, Dec 8

This article first appeared in The Edge Financial Daily, on December 9, 2014.