Period  3Q14/9M14

Actual vs. Expectations HARBOUR recorded 3Q14 core net profit of RM5.5m, bringing its 9M14 core earnings to RM20.7m, accounting for 68.0% of our full-year forecast. We deemed this as within our expectations given that historically 4Q are usually stronger than 3Q.

Dividends  As expected, no dividends were declared in this quarter.

Key Result Highlights QoQ, 3Q14 core net profit is 15.7% lower due to higher effective tax rate despite registering a top line growth of 6.8% underpinned by higher contribution from engineering division.

 On YoY basis, 9M14 core net profit improved by 9.3% mainly on the back of: (i) decrease in PBT in shipping & marine segment due to dry docking cost of 2 existing vessels, (ii) marginal increase in logistics services and equipment rental division revenue, and (iii) earnings turnaround in engineering division with RM7.0m PBT achieved in 9M14 compared to loss before tax of RM0.5m in 9M13 caused by higher billings from two of its ongoing projects.

Outlook  As a major logistics player in East Malaysia, we believe SCORE could be the driver for the marine, shipping and logistics divisions in years to come with more economic activities expected in Sarawak, driving demand higher for logistics services.

 HARBOUR has also made their maiden foray into property development by developing their 130 acres land located in proximity to Bintulu port. With an estimated GDV of RM1.0b, the project is a mixed industrial and commercial development with Phase 1 GDV of RM120m. Response for the project has been encouraging with 60.0% take-up. However, earnings are only expected to commence in FY16 as the group will only recognise property earnings on a completion basis.

 Outlook for engineering division remains bright with current orderbook standing at RM120m, which provides earnings visibility for the next two years. Tender book stands at RM1.0b and we have only imputed 10.0% success rate for yearly contract replenishment.

Change to Forecasts We maintain our forecasts and assumptions for now.

Rating Maintained at OUTPERFORM

Valuation  Our SOP-derived TP is maintained at RM2.20, implying an upside of 23.6%.

Risks to our Call Delay in property development project.

 Delay in SCORE and RAPID.

Source: Kenanga