Period  4Q14/FY14

Actual vs. Expectations HARBOUR recorded 4Q14 core net profit of RM11.9m which brought FY14 core earnings to RM32.7m. It is slightly above our expectations, at 107.9% of our fullyear forecasts due to higher-than-expected net margins achieved (Actual: 7.1% vs. forecasted: 6.6%) coupled with slightly higher-than-expected top line growth.

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

Key Result Highlights 4Q14 core net profit surged by a whopping 117.5% QoQ driven by: (i) lower operating expenses, and (ii) lower effective tax rate (4Q14: 28.3% vs. 3Q14: 39.0%) mainly due to higher non tax-deductible expenses in 3Q14 despite 10.3% QoQ decline in revenue.

 Core net profit remains relatively unchanged in 4Q14 on YoY basis (-0.2%). Drilling deeper into its business segments, logistics & equipment rental division was the outperformer with 304.3% YoY surge in revenue on the back of higher amount of contracts secured for project logistics. Meanwhile, other divisions registered YoY decline in revenue on weaker container shipping market condition.

 FY14 core earnings registered a 6.6% uptick on the back of (i) higher revenue backed by improvements in logistics & equipment rental and engineering division and (ii) lower finance costs on lower borrowings.

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 higher economic activities expected in Sarawak, driving demand higher for logistics services.

 With an estimated total GDV of RM1.0b, the group’s maiden property development project in Bintulu is a mixed industrial and commercial development with Phase 1 GDV of RM120m. Response for the Phase 1 project has been encouraging with 60.0% take-up and 40.0% completion rate achieved so far. However, strong earnings growth is only expected to be felt in FY16 as the group plans to recognise property earnings on completion basis.

 Outlook for engineering division remains bright with current orderbook standing at RM120.0m and tender book at RM1.0b. The group intends to bid for tank terminal works in RAPID, Johor but the mega project is still in preliminary stage at the moment. We reckon it would take at least half a year for their round for bidding as they are likely to bid as a subcontractor. However, this is being partially offset by weaker shipping division.

Change to Forecasts While maintaining our FY15 forecasts, we introduce FY16 core net profit forecast of RM61.6m. We have included contribution from the property segment with revenue of RM120.0m (Phase 1 total GDV) on 35.0% EBIT margins assumption.

Rating Maintained at OUTPERFORM

Valuation  Our SoP-derived TP is maintained at RM2.20.

Risks to our Call  Delay in property development project.

 Delay in SCORE and RAPID.

Source: Kenanga