OVER the past year or so, port and haulage operator NCB Holdings Bhd’s share price has more than halved, from RM4.80 in August last year to a low of RM2.68 on Oct 8 — the lowest since mid-2011. Most analysts who cover NCB have downgraded the counter, a stark contrast from when it was known as a defensive stock, given its constant dividend payments.
K&N Kenanga, for instance, reduced its target price for NCB by a third, from RM3.10 to RM2.07 in August, after NCB’s weak second-quarter financial results were announced.
For the six months ended June this year, NCB posted a net profit of about RM7.6 million, down 74% from RM29.3 million in the previous corresponding period. Revenue dipped 12% to RM411.4 million. According to analysts, the dip in profit was the result of an increase in depreciation charges and a 14.8% year-on-year decline in total container throughput handled.
The outlook for NCB is not pretty. “If NCB does recover, there will definitely be upside in its share price, but I don’t expect a recovery anytime soon ... not in this financial year, as the earnings are weighed down heavily by the weak first half,” says an analyst who tracks the company.
“I don’t doubt NCB can turn around, but this year ... will be difficult, maybe [in] two years,” adds the analyst. He declines to be named as his views are relatively negative.
He says NCB is grappling with competition from Westports Holdings Bhd (the other terminal operator in Port Klang), slowing growth at the port, and a need to invest in new equipment.
The issues at NCB
Westports is a much newer port, having started operations in 1994, While Northport is more than a century old.
As such, Westports is better planned and has a deeper draft, not to mention newer equipment, which in turn leads to faster turnaround time. According to Westports’ website, in June this year, it set a new record for container terminal productivity, with 793 containers moved in an hour.
NCB’s numbers have not been revealed to the public. It may not be able to go on a price war considering the current low rates. For instance, Port Klang’s transshipment rate is US$46 (RM149) per twenty foot equivalent unit (TEUs), and has remained unchanged since the mid-1960s.
While there was a plan late last year to increase Port Klang’s charges, it hasn’t come to fruition. Charges for the two terminals in Port Klang are almost 30% less than that of Pelabuhan Tanjung Pelepas in Johor and less than half of Port of Singapore.
“It’s not so easy to get a shipping line to shift. There has to be a catalyst for it to pack up and move,” the analyst adds.
To make matters worse, growth in container volume at Port Klang has also been tapering off. In 2013, it handled 10.3 million TEUs, a mere 0.3 million TEUs increase from 2012. In 2011, it handled 9.6 million TEUs.
From 2005 to 2008, Port Klang’s container throughput grew by about 800,000 TEUs a year. Note that Westports now handles some 75% of Port Klang’s throughput, having consistently gained market share over the years.
Another thorn in NCB’s side is its haulage arm Kontena Nasional Bhd (KN), which has consistently bled losses over the years.
NCB, in the notes that accompanied its financial results, says KN bled net losses to the tune of RM16.5 million for the six months ended June this year, less than the RM45 million in the previous corresponding period.
NCB hired auditors Pricewaterhouse Coopers (PwC) to conduct a special review to identify the cause of the losses. PwC’s findings indicated it was due to inflated revenue and suppressed operating expenditures. PwC found that there were adjustments of RM56.6 million — out of which RM32 million was accrual of costs while an additional RM24.6 million was over recognition of revenue — from 2010 to 2013.
In an announcement to Bursa Malaysia,NCB said, “There have been breaches of duty and obligations by someone within Kontena Nasional’s senior management by concealment and misrepresentations in the financial records”.
KN’s woes started about 15 years ago, when the government licensed more than 60 new haulage companies, flooding the market of only five players.
To its credit, however, NCB has not been sitting idle. It forked out RM600 million from 2012 to 2013 in capex and this year, it increased capex by RM500 million to expand its capacity to 6.2 million TEUs from 5.6 million previously. NCB undertook the construction of a wharf (8A) at Northport at a cost of RM350 million. To be ready by 2016, the wharf will add capacity of 600,000 TEUs and enable larger vessels, which require berths of 17m and more, to call at the port.
K&N Kenanga forecasts NCB’s net profit to be RM18 million for the current financial year ending Dec 31, 2014, and only RM20.1 million for FY2015, indicating that NCB’s fortunes are not likely to improve anytime soon.
As at June 30, NCB had a cash balance of RM119.9 million while its short-term debt commitments were RM142.7 million and its long-term borrowings were RM41.5 million.
Looking at these issues, the tide seems to have turned against NCB and whether the company swims or sinks remains to be seen.
This article first appeared in The Edge Malaysia Weekly, on October 13 - 19, 2014.
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