Period  4Q14/FY14

Actual vs. Expectations  FY14 net profit of RM29.3m (-43.3%) beat both our and consensus’ expectations by accounting for 551% and 129% of the forecasts, respectively. The positive deviation can be attributed to the utilisation of tax assets and the lower-thanexpected finance costs due to the later-than-expected drawdown of borrowings.

Dividends  No dividend was declared. FY14 DPS of 2.0 sen (vs FY13: 3.5 sen) was below expectation as we expect total of 3 sen to be declared.

Key Results Highlights  YoY, FY14 revenue declined by 8.7% to RM839.6m with both operating segments recording lower revenue. Meanwhile, net profit fell 43.3% to RM29.3m on lower earnings contribution by port operations despite the narrowed losses from logistics operations.

 Port operation: Revenue recorded was 7.2% lower, in line with the lower container throughput volume, which declined 10.6% on the back of lower utilisation rate due to the upgrading of Wharf 16. Meanwhile, segmental PBT shrank 55.3% to RM74m due to the lower utilisation rate and additional expenses in regards to the upgrading works.

 Logistics operation: Revenue declined by 11.9% to RM251.9m after being affected by the lacklustre oil and gas activities and the cessation of non-profitable business as part of the rationalization plan in order to turn the division around. Segmental LBT narrowed to RM52.9m from RM73.2m due to the rationalization.

Outlook  The upgrading of Wharf 8 is expected to start in 2Q15. That, together with Wharf 8A will enable the Group to attract larger shipping lines by catering to larger ships. We are assuming throughput growth of 3% in FY15 following the completion of Wharf 16.

 Meanwhile, logistics operations in still in the process of rationalising, including reviewing internal processes, rightsizing workforce and establishing centralized vendor management system being lined up in order to return to profit. We conservatively expect the division to breakeven by FY16.

 We remain cautious on the outlook despite the better 4Q14 earnings which was aided by tax assets and lower finance costs. We expect FY15E earnings growth to be marginal despite the new capacity due to the initial costs of the upgrading works as well as higher finance costs.

Change to Forecasts  No changes to forecasts as we expect FY15E earnings to normalize following the depletion of tax assets as well as the higher finance costs due to the sukuk drawdown of RM350m in 4Q14. We introduce FY16E forecasts, with net profit of RM27.4m on the back of higher volume, contributed by the Wharf 8.

Rating Maintain Underperform

Valuation  We maintain our DCF-driven Target Price of RM1.83 based on unchanged risk factors. (Ke:7.88%, g:1%)

Risks to Our Call  Higher-than-expected throughput growth

 Better-than-expected global economic growth. 

Source: Kenanga