- Integrated logistics service provider. Harbour-Link Group Bhd (HARBOUR) provides a full range of logistics services, including land transportation, freight forwarding, warehousing and also equipment leasing and rental services predominantly in East Malaysia. The group also provides shipping services comprising of shipping agencies, ship chartering, bunkering, containerization, marine support and tug and barges. Moving forward, the group intends to value add to their logistics services by providing 3PL warehousing services, which now include the distribution services for their clients where margins are higher than conventional warehousing. At the moment, the only notable competitors are Tiong Nam Logistics and Century Logistics.

- Shipping and logistics to benefit from SCORE. With the economic activity in Sarawak expected to improve substantially moving forward given the government’s numerous initiatives like SCORE and the completion of Samalaju Port in the medium-term, we believe that HARBOUR’s logistics business is well poised to benefit from the increase in cargo and trade volume.

- Going RAPID. HARBOUR also has an engineering division which provides Engineering, Procurement, Construction and Commissioning (EPCC) services. RAPID, in our opinion, will benefit the group as more oil and gas contracts are expected to be rolled out if the initiative materialises. As of now, the current remaining orderbook stands at RM50.0m with a tenderbook of RM1.0b. Assuming a hit rate of 10%, we expect the company to secure RM100m worth of contracts to replenish its orderbook.

- Maiden venture into property development. Three years ago, the group managed to acquire 130 acres of industrial land next to Bintulu Port with three main road frontages prior the run-up in land prices given the increased pace of activities in Bintulu Port and commencement of operations of some factories in Samalaju industrial area. Estimated GDV of this industrial/commercial township is RM1.0b @ ASP of RM250.0 psf. The project does enjoy higher-than-average pretax margins of > 40% given that land and construction cost only constitute 6% and 50% of GDV, respectively. So far, the group has launched RM120.0m worth of industrials/shoplots with 60% take-ups.

- Set to stage strong recovery in earnings. In FY13, earnings suffered due to a one-off writedown of goodwill amounting to RM25.5m. However, excluding this one-off item, core earnings were a record RM30.4m. Over FY14-15, we believe that there will be a robust recovery in earnings with an expected 2-year CAGR of 294.8% to RM46.7m in FY15 assuming: (i) revenue of shipping and logistics topline to grow at 2-year CAGR of 3.5%, (ii) orderbook for engineering division to be utilised over a two-year span on top of a contract replenishment assumption of RM100.0m per annum, and (iii) commencement of contribution for property in FY15. Net gearing is at a comfortable 0.6x.

- Trading Buy with a TP of RM2.00, based our SoP valuation, which implies a FY15E PER of 7.8x. We have applied: (i) a 9x PER on FY15 Shipping/Logistics and EPCC segment and (ii) 50% discount to its property division’s RNAV.

Source: Kenanga