NCB (5509) NCB HOLDINGS BHD
KUALA LUMPUR: Kenanga Investment Research is retaining its Underperform rating on port operator and logistics company NCB Holdings and reduced its discounted cashflow target price to RM1.83 from RM2.07.
The research house said on Tuesday NCB’s 3Q14 core net loss came in at RM2.3mil, lowering its net profit for the nine months ended Sept 30, 2014 to RM5.3mil which is below expectations as it only accounted for 29.4% and 19.9% of the FY14 estimate and consensus forecast, respectively.
“This is mainly due to an unexpected drop in container throughput on-year, further worsened by higher depreciation cost relating to the construction of Wharf 8A,” it said.
In 3Q14, NCB registered net loss of RM2.3mil against a core net profit of RM2.8m in the preceding quarter due to tepid container throughput growth on-quarter (+1.6%) and higher finance cost.
When compared on a on-year basis, the negative deviation in earnings is even greater with RM2.3mil loss registered in 3Q14 compared to RM27.3mil core net profit recorded in 3Q13.
Kenanga Research said the main culprits for the drastic drop in earnings are: (i) -9.9% on-year change in container throughput and (ii) 7.9% YoY increase in expenditure mainly driven by additional depreciation cost from newly completed Wharf 8A.
Cumulative core net profit for 9M14 was RM5.3mil, which was a 90.7% on-year drop underpinned by 13.2% drop in container volume predominantly.
On NCB’s outlook, the research house said construction was still on-going in the wharf area of the port with Wharf 16 currently being upgraded to a multi-purpose wharf.
In addition to the completed Wharf 8A, upgrading on Wharf 8 will soon be initiated to cater for larger container ships owned by larger shipping lines. This could potentially unlock the full potential of Wharf 8 and 8A to cater for transhipment cargoes.
“Notwithstanding, we remain cautious on the container throughput growth outlook in the near term as it has registered negative on-year 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 non-profitable revenue streams to cease.
“We have decided to cut our earnings forecasts by 75.1% and 72.4% for FY14 and FY15, respectively 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,” it said.
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