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KUALA LUMPUR: NCB Holdings Bhd said it will not dispose of its loss-making logistics arm Kontena Nasional Bhd, even though it has placed a major drag on the group’s earnings in the past years.

Managing director Abi Sofian Abdul Hamid said Kontena Nasional will continue to be part of NCB as its business complements that of its port operating outfit Northport (M) Bhd.

“If you look at Northport and Kontena Nasional, we are part of the logistics chain. If we can come up with the right package, that is a big advantage,” he told The Edge Financial Daily in an interview.

“By selling the unit (Kontena Nasional) to others and exiting the business, we are giving the foundation to someone else to make money. Yes, there are many players in the [logistics] market to compete with, but if they can make money, why do we want to give it up? We just need the right plan to turn it around,” Abi Sofian said.

Kontena Nasional has reported losses for five straight years since the financial year ended December 2010 (FY10). In FY14, the beleaguered unit narrowed its net loss to RM55.62 million from RM75.31 million in FY13, although revenue fell 14.79% to RM243.67 million from RM285.95 million.

NCB saw its net profit fall 46.1% to RM27.86 million in FY14 from RM51.68 million the previous year on lower revenue of RM830.99 million, down 9.61% from RM919.38 million in FY13, on lower contribution from its container business and logistics operations.

However, for its first quarter ended March 31, 2015 (1QFY15), NCB more than doubled its net profit to RM11.64 million from RM4.76 million a year ago despite a 3.71% drop in revenue to RM197.98 million from RM205.61 million in 1QFY14.

Northport contributed 72% to NCB’s total revenue in 1QFY15.

Abi Sofian attributed the improved 1QFY15 results to higher efficiency at Northport and the turnaround initiatives by Kontena Nasional that have materialised.

“We aim to divest all non-profitable businesses such as trucking and warehouse distribution under Kontena Nasional by the end of this year, and hope to turn it around by mid-2016,” he said.

“In 1QFY15, we managed to reduce [Kontena Nasional’s] losses from RM4 million to RM1 million a month. In 2QFY15, because we have exited some businesses, there would be a drop [in revenue] but profit will improve,” he said.

Abi Sofian sees the full impact of Kontena Nasional’s turnaround initiatives to be reflected in its 3QFY15 and 4QFY15 results.

For full year FY15, Abi Sofian expects Kontena Nasional to post an 8% to 10% revenue growth as it tries to win back old customers.

“We are trying to win back those customers that we lost when we reduced our container haulage business.

“It is not easy, but we are working hard. There are a lot of naysayers everywhere,” Abi Sofian said.

Kontena Nasional currently operates 300 prime movers, for which management is aiming to achieve higher optimisation.

“As for now, we managed to utilise 78% to 79% capacity of the prime movers, but we want to push it to 90% upon completion of the turnaround plan,” he said, adding that he wants to increase the total number of prime movers to 400 next year.

Abi Sofian said Kontena Nasional will also renegotiate its long-term contracts with customers to reduce the cost of operations and get better margins.

NCB (fundamental: 2.05; valuation: 0.8) shares fell 1.64% to RM3.59 yesterday, giving it a market capitalisation of RM1.68 billion.

 

This article first appeared in The Edge Financial Daily, on July 8, 2015.

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