Period  1Q15

Actual vs. Expectations HARBOUR recorded a core net profit of RM11.2m in 1Q15 which accounted for 32.8% of our full-year FY15 forecast. This is slightly above expectation, despite the first quarter being typically the strongest quarter of the year, due to stronger-than-expected margins achieved in the Logistics & equipment rental division.

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

Key Result Highlights In 1Q15, core net profit surged 28.3% YoY to RM11.2m which was underpinned by: (i) stronger PBT margins achieved in the Logistics and equipment rental division due to the ongoing MLNG train line project in Bintulu, which yielded higher margins and (ii) higher cargo volume achieved in the Shipping & Marine division. This is, however, being partially offset by weaker contribution from the Engineering contract division YoY as the projects started in 1Q15 are still at the initial stage.

 Core net profit dipped 5.8% QoQ primarily driven by weaker Shipping & Marine PBT margin (1Q15: 4.1% vs. 4Q14: 8.9%) amid challenging shipping environment and lower project billings from the Engineering contract division as projects were still at the initial stage during the quarter. The negative impact was, however, partially mitigated by stronger QoQ performance from Logistics and equipment rental division on higher margin projects executed in the quarter.

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 has been encouraging with 60% take-up and 40% completion rate achieved so far. However, earnings are only expected to be felt in FY16 as the group intends to recognise its 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 participate as a subcontractor.

Change to Forecasts

 While the group’s 1Q15 results exceeded our expectations slightly, we have decided to take a more conservative stance by maintaining our earnings forecast for now as the strong margins may not be sustained for the whole of FY15 as higher margin projects are due to be completed in the next 2 quarters ahead.

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