NCB Holdings (NCB) reported a core net profit of MYR2.8m for 2QFY13, which was way below our and consensus estimates. Both the ports and logistics  divisions  reported  lower  contributions  while  its  logistics operation  posted  a  huge  loss  due  to  cost  overruns.  We  are  revising downwards  our earnings  forecast, which  accordingly  lowers  our  FV  to MYR4.57. Downgrade to NEUTRAL.  
 
- Below expectations. NCB’s 2QFY13 core net profit, which sank 91.5% q-o-q  to  MYR2.8m,  caught  us  by  surprise.  The  cumulative  1HFY13 numbers only made up 23% of our original forecast and were way below our and consensus estimates.  

- Ports  and  logistics  down  in  1H.  The  ports  as  well  as  logistics segments saw declines in revenue and profit. In the first six months, the port  operation’s  total  revenue  declined  7.4%  y-o-y  to  MYR321.6m, mainly due to lower container throughput handled by Northport, while the total  containers  handled  stood  at  1.5m  twenty-foot  equivalent  units (TEUs), vs 1.6 TEUs in 1HFY12. The logistics segment, which posted a lower  revenue  of  MYR144.8m  in  2QFY13  (-11.9%  y-o-y),  also  saw  its operating costs surge 37.1% y-o-y as a result of operating cost overruns and weak cost control on the jobs undertaken. These gave rise to a huge MYR45.0m (>-100%) loss in the logistics operation.

- Revising  earnings  forecasts.  We  are  revising  lower  our  earnings forecasts for FY13F and FY14F to MYR55m and MYR84m respectively, from  MYR159m  and  MYR142m,  owing  to  the  disappointing  2QFY13 numbers.

- Risks.  Intensifying  competition  and  weak  cost  control  will  further dampen NCB’s profitability.

- Downgrade  to  NEUTRAL.  Following  our  downward revision of NCB’s earnings  forecasts,  we  arrive  at  a  new  MYR4.57  FV  (from  MYR5.38), based on discounted free cash flow to equity, at an unchanged required return  of  11.5%.  Downgrade  NCB  to  NEUTRAL  (from  BUY)  in  view  of the cost overruns at its logistics division. 

Source: RHB