Period

2Q15/1H15

Actual vs. Expectations

1H15 net profit of RM18.6m (+146.3%) was within expectations by accounting for 47.8% and 52.7% of our in-house and consensus’ forecasts, respectively.

Dividends

DPS of 2.0sen (1H14: 2.0 sen) was declared, in line with our expectation.

Key Results Highlights

YoY, 1H15 revenue declined 5.2% to RM390.2m mainly due to the fall in contributions from the logistics division (-23.7%) on the back of business downsizing while port operations grew by 3.7% thanks to the 8.7% growth in throughput volume. PBT managed to jump 93.4% to RM29.9m despite the widening losses in logistics division, driven by the port operations mainly attributed to the lower fuel and repair and maintenance costs. The lower effective tax rate of 37.7% (vs 1H14: 51.1%) accelerated the net profit growth to 146.3% while net profit was reported at RM18.6m.

QoQ, 2Q15 revenue shrank marginally by 2.9% again due to the weakness in logistics business on the reasons mentioned above. PBT dipped 35.0% to RM11.8m due to the widened losses in logistics division (+RM0.9m in LBT). Net profit declined at a greater extent of 39.8% to RM7.0m due to a higher effective tax rate of 40.5% as compared to 35.8% in 1Q15.

Outlook

The recently-announced tariff hike in Port Klang is positive to NCB as we do not expect negative impact to the volume with regards to the new pricing. Healthy throughput growth was sustained into 2Q15 while the lower operating costs due to lower oil prices have further helped in growing profit numbers.

The next phase of facilities upgrading is expected to start in 2Q15 with the upgrading of Wharf 8. That, together with Wharf 8A, will enable the Group to attract larger shipping lines by catering to larger ships. On the flipside, the outlook of logistics remains a concern as it is dragging down the profit growth. However, the Group has secured a three year contract from the oil and gas sector which is expected to increase its revenue commencing from the 4Q15. Thus, we believe the target of achieving profitability in 2016 is achievable.

Change to Forecasts

No changes to earnings forecasts.

Rating

Maintain UNDERPERFORM

Share price’s performance was strong with 76% YTD gain, which was probably driven by M&A with shareholder MMC Corpincreasing its holding stake. However, we think that the chance of a General Offer (GO) is low in view of MMC Corp’s high gearing, and thus the share price might normalize to match its fundamentals.

Valuation

Our Target Price of RM4.05 is kept, based on 1.3x PBV FY16E, which is in line with +0.5 SD over 5-year mean.

Risks

Higher-than-expected operating costs

Lower-than-expected throughput growth

Source: Kenanga Research - 25 Aug 2015