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NCB Holdings Bhd
(Dec 4, RM2.35)
Maintain “buy”, target price (TP) at RM 3.
NCB is offering terminal space to its customers for maintenance/storage purposes to help them lower their overall costs. It recently sealed deals for this value-add service with its two existing key customers, Wan Hai and Korea Marine Transportation Co (KTMC), and a new customer, PIL.

Management expects positive volume growth in 2015. Its logistics business will return to the black (first nine months of financial year ending 2014, 9MFY14: RM27million pre-tax loss) with the business rationalisation exercise to be completed by end-2014 and management aims to secure new infrastructure-related trucking contracts in FY15. Its 30-year concession will be renewed in the first quarter of FY15 which will see NCB implementing IC12 and incurring high upfront depreciation and amortisation charges. MMC  Corp has yet to share its plans for NCB with management.

We are disappointed that the rare briefing yesterday did not shed any light on MMC’s plans after its emergence as a major shareholder of NCB.

However, considering the depressed share price (multi-year low) and valuation (0.8 times price-to-book value, P/BV), we think the risk reward is in investors’ favour.

Our TP is unchanged, pegged to 1 times P/BV, the valuation MMC paid for its 15.7% stake in NCB. Operationally, we expect NCB to churn higher earnings before interest, taxes, depreciation and amortisation in FY15 and FY16 (+37%/+8%) on the absence of business rationalisation cost for its logistics division and higher throughput volume (+2-5% in FY15 and FY16).

However, due to the higher depreciation/amortisation charges and interest expense (gearing up for the purchase of equipment and upgrading of wharf 8) in FY15 and FY16, we lower our FY15 and FY16 forecast earnings per share substantially by 87% and 78% respectively. — Maybank Investment Bank Bhd, Dec 4

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This article first appeared in The Edge Financial Daily, on December 5, 2014.

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