Although  NCB  Holdings  (NCB)’s  3QFY13  numbers  beat  our expectations, its  overall operations remained  under pressure.  YTD,  the number  of  containers  handled  fell  7.6%  y-o-y  while  business  at  its logistics arm remained weak. We review our valuations as we may have been  too aggressive in our  earlier cost assumptions. Hence, we  cut our FV to MYR3.50 (from MYR4.38). Maintain NEUTRAL.

• Better  than  expected  but  still  weak.  NCB’s  3Q13  earnings  of MYR27.3m  beat  our  expectations.  We  believe  we  may  had  been  too conservative  on  its logistics arm  earlier  after having  incorporated  higher expense  assumptions  due  to  the  reported  cost  overruns  in  2Q13. Nonetheless,  its  overall  performance  was  still  weak  since:  i)  revenue from  its port operations  slipped  9.2% y-o-y,  and  ii) after-tax profit  sank 24.6% y-o-y as the total containers handled shrank 9.1% and 7.6% y-o-y in 3QFY13  and  9MFY13  respectively.  NCB’s  logistics arm continued to languish, posting  a  pre-tax loss of MYR5.6m in 3QFY13 as a result of slower  business  activities,  although  management  has  been  making efforts to improve the unit’s cost structure.
• Outlook remains cloudy. With NCB’s Container Terminal 4 expected to commence  operation  in  4QFY13,  management  is  hopeful  that  the company  will  become  more  competitive.  However,  with  the  operating environment  becoming  increasingly  competitive  for  port  players,  we believe  NCB’s  port  operation  may  continue  to  encounter  challenges going  forward.  Meanwhile,  earnings  at  its  logistics  business  are  also expected to continue to come under pressure.  
• Risks.  Intensifying  competition  and  weak  cost  control s  will  further dampen NCB’s profits.
• Still NEUTRAL, with a new MYR3.50  FV.  We adjust  our  revenue and cost  assumptions  and  lift  NCB’s  FY13F/14F  earnings  to MYR71m/MYR98m  from  MYR48m/MYR76m  respectively.  We  also revise  the  required  rate  of  return  to  13.5%  from  11.5%  in  our  DCF valuation as we foresee a tough going for NCB ahead. All said, we arrive at a lower MYR3.50 FV (from MYR4.38). Maintain NEUTRAL.

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Company Profile
NCB is the port operator of Northport and Southpoint located in Port Klang, Malaysia's national load centre. It is also a leading haulage company.

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Source: RHB