We came away from NCB’s 1Q15 analysts’ briefing feeling more reassured of its earnings growth potential after the management made known of its development plans moving forward. The briefing received overwhelming response with the attendance of approximately 40 fund managers and analysts, while CEO - Mr. Haji Abi Sofian bin Abdul Hamid - gave an enlightening presentation which provided more insights on 1Q15 results, the development and challenges of both port operation and logistics business as wel as the potential synergy with new shareholder MMC Corp. Reiterate MARKET PERFORM with unchanged Target Price of RM3.04, based on 1x PBV FY15E, which is in line with -0.5SD 5-year mean.

Healthy throughput growth. To recap, 1Q15 total throughput volume of 12.4%, underpinned by higher transhipment volume, which surged 28.9% while import/export volume declined by 1.0%. However, revenue growth recorded in the division increase by 4.0%, which was at a slower pace as compared to the volume growth. The Group attributed the moderate growth to the competitive market condition. Nonetheless, PBT contribution jumped by 53.9% to RM27.9m due to lower operating costs driven by lower fuel costs and repair and maintenance costs. Moving forward, the Group is cautiously optimistic on the sustainability of volume growth in view of the economy slowdown in China, sluggish European growth as well as the challenges from Singaporean and Indonesian ports, while the domestic competition will also drive the Group to improve its efficiency.

Logistics on right track. NCB’s loss-making logistics subsidiary, Kontena Nasional, has narrowed 1Q15 LBT to RM9.3m from RM9.6m a year ago on the back of lower revenue of RM143.9m (- 14.9%). The lower revenue was due to the business rationalisation whereby the division has terminated the lower scale business which generated low profitability to focus on bigger scale business in order to achieve economies of scale. The management is confident that the division is on the right track to further narrow its losses in FY15 before returning to profitability in FY16, which is in line with our expectations. The division recorded LBT of RM52.9m in FY14, down from RM73.2m in FY13.

Looking forward to synergies. As for the potential collaboration or interaction with new shareholder MMC Corp, management revealed that both parties are still discussing and exploring the areas and model where the ports operations and logistics business of both companies can complement each other in order to create synergy. However, the discussion is still at early stages; thus we have not factored in any impact from that perspective at this point of time. Meanwhile, the Group indicated that the submission work for port tariff revision has been completed, but the government has yet to respond to the application, thus providing no further details on the timeline and quantum of the possible tariff revision.

View remains unchanged. We maintain our TP of RM3.04, based on 1x PBV FY15E, which is in line with -0.5SD 5-year mean PBV while implying 36.2x FY15E PER. Our TP offers a total return of 7.6%, hence our unchanged MARKET PERFORM rating. 

Source: Kenanga Research - 5 May 2015