Period  3Q14/9M14

Actual vs. Expectations 3Q14 core net loss came in at RM2.3m, lowering its 9M14 cumulative net profit to RM5.3m which is below expectations as it only accounted for 29.4% and 19.9% of our FY14 estimate and consensus forecast, respectively. This is mainly due to an unexpected drop in container throughput YoY, further worsened by higher depreciation cost relating to the construction of Wharf 8A.

Dividends  No dividend was declared for the quarter.

Key Result Highlights In 3Q14, NCB registered net loss of RM2.3m against a core net profit of RM2.8m in the preceding quarter due to tepid container throughput growth QoQ (+1.6%) and higher finance cost.

 When compared on a YoY basis, the negative deviation in earnings is even greater with RM2.3m loss registered in 3Q14 compared to RM27.3m core net profit recorded in 3Q13. The main culprits for the drastic drop in earnings are: (i) -9.9% YoY 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 stands at RM5.3m, which implies a 90.7% YoY drop underpinned by 13.2% drop in container volume predominantly.

Outlook  Construction is 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 works 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 YoY 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 nonprofitable revenue streams to be ceased.

Change to Forecasts 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.

Rating Maintain at UNDERPERFORM

Valuation  Our DCF-derived TP is reduced to RM1.83 from RM2.07 based on similar risk factors as a result of cut in earnings forecasts. (Ke: 7.88%, g: 1.00%)

Risks to our Call (i) Faster than expected recovery in container throughput

 (ii) Earlier than expected completion in upgrade works f 16 and 8.

Source: Kenanga