I am here to ANSWER a simple question. Why

Harbour? (Target price - RM4.00 to RM5.00)

EPS estimation

1) Shipping, marine services and others  - 4sens

2) Logistics services and machineries - 24sens

3) Engineering work - 12sens

4) Property development - 10sens

Total EPS - 50sen, PE10= RM5.00, PE8= RM4.00

Before answering this question, here is some of the background of Harbour-Link Group Berhad.

Harbour-Link Group Berhad is a Bintulu based company. The company establish since 1975 in the business of freight-forwarding and shipping industry in the east Malaysian state of Sarawak.

Harbour-Link Group Berhad have involvement in four business segment namely:

1) Shipping, marine services and others

2) Logistics services and machineries

3) Engineering works

4) Property developments

Why Harbour?

1) Property development with extremely good profit margin

of more than 50% (Kidurong Gateway)

2) Diesel price decreased by 10 to 15% compared to last

quarter (Oct'14 to Dec'14)

3) SCORE (Sarawak Corridor of Renewable Energy)

4) Low Price Earning Ratio and net cash company in less

than 2 years.

5) Sarawak Election

6) Other factors

1) Property development with extremely good profit margin of

more than 50% (Kidurong Gateway)

Arcadia Properties Sdn. Bhd. a subsidiary of Harbour-Link Group Berhad, ventures into latest mixed development scheme, named “Kidurong Gateway”, located at prime location of Kidurong Industrial Area (KINDA), with total land size of 50.8ha (125.5 acres). Kidurong Gateway envisaged to generates a gross development value (GDV) exceeding RM500 million with the built-up in an eco-friendly manner conforming to overall sustainable development design.

The company has successfully launched phase 1 and phase 2. Estimated launch units stood at GDV of RM120million. According to the management, the project will be completed within 2 years time.

Based on the last 2 quarter report, I have notice that the revenue book into the last 2 quarter result is only RM3,252,000 (3% from the total GDV). We have noticed that the profit margin stood at as high as between 79.69% to 84.76%. As the company already launch total GDV of RM120million, only RM3 million was recognise during last 2 quarter. Here is the progress from the Harbour-Link website (http://www.harbour.com.my/property-development) for both phases). The high profit margin are mainly due to the land have been acquired during early time and some of the land acquired during 2010. From the mouth of word from one of my friend from Sarawak, the property price have been sky rocket during since early 2010 due to SCORE project which I will be mentioned in the later part of my article. Hence the land cost will be extremely cheap. 

With the remaining GDV of RM 117millions, with six quarters to go, the profit per quarter will be around RM9.5millions. Since the company only hold 51% of Arcadia Properties Sdn Bhd, the profit will be RM4.75 per quarter which translate into 2.5sen earning per share per quarter. As the calculation only based on 50% profit margin, the profit will be higher if the profit margin achieve 75% as per the schedule above.

The progress of both phases are as follows:

Phase 1

Phase 2

As the both of the progress photo above, the progress of  both phases should at least reached 10 to 20% while only 3% of the revenue booked into the account. 

2) Diesel price decreased by 10 to 15% compared to last quarter

(Oct'14 to Dec'14)

Above table shown are the diesel price from Oct'14 to Mar'15. As the company (http://www.harbour.com.my/integrated-logistics-services/land-transportation) core business are land transportation such as general cargo transportation, oil tanker services, container haulage, lowbed tralier services and small parcel delivery which consume alot of diesel. With the reduction in the diesel price from RM2.21 (average of Oct'14 to Dec'14) to RM1.86 (average of Jan'15 to mar'14), equivalents to 15% reduction in cost of diesel. Hence the profit for land transportation will be increased during coming quarter and for future quarter as the latest diesel price still stood at RM1.95 (May'15).

Also, the company involves in shipping and marine services. The following are the type of vessels provided by the company:

a) Tugboat

boat that maneuvers vessels by pushing or towing them

b) Barge

 flat-bottomed boat, built mainly for river and canal transport of heavy goods.

c) Container Vessel

 cargo ships that carry all of their load in truck-size intermodal containers

d) General Cargo

 any sort of ship or vessel that carries cargo, goods, and materials from one port to another. 

e) Landing Craft

boats and seagoing vessels used to convey a landing force (infantry and vehicles) from the sea to the shore during anamphibious assault.

As the above vessels consume lot of diesel, with the decreased in diesel price, the company will have a cost saving in the transportation cost. In conclusion, the profit of the company in marine and shipping services will increase. 

3) SCORE (Sarawak Corridor of Renewable Energy)

So what is SCORE?

SCORE is the second largest of the corridors in Malaysia and covers an area of more than 70,000 square kilometres of the resource rich central region with a population of more than 600,000.

In view of this, the 2008 – 2030 development plan for SCORE focuses on developing the energy sector and targets 10 high impact priority industries that will complement the development plan and also provide downstream opportunities for SMEs..Long term, the State has the potential to deliver 20,000MW of clean electricity generating total energy output of 87,000 Hwh per year.SCORE is expected to be the leading producer of inexpensive energy in the region by 2030.

The Federal Government of Malaysia offers a number of very attractive investment incentives, including Pioneer Status which allows for 100% tax exemption for 5 years, Investment Tax allowances, Reinvestment allowances and import duty exemption.

The State Government of Sarawak offers attractive incentives such as competitive land prices, electricity tariffs and water rates.

Based on the news below, In 2014, Sarawak registered total investments in the manufacturing sector valued at RM9.6 billion, of which, 87 per cent came from foreign investment while the remaining ones came from domestic investments.

http://www.theborneopost.com/2015/05/04/sarawak-a-good-bastion-to-attract-foreign-investments/

Here is some of the investor which have invested in SCORE: (attract from SCORE's website)

1) Asia Cement Co., Ltd. / Asia Advanced Materials Sdn. Bhd.

2) Asia Minerals Limited / Permata Ferroalloys Sdn. Bhd.

3) OM Holdings Ltd / OM Materials (Sarawak) Sdn. Bhd.

4) Press Metal Sdn. Bhd.

5) Tokuyama Corporation / Tokuyama Malaysia Sdn. Bhd.

.

As the development of SCORE growing rapidly, the demand for rental services and transportation services are increasing in the SCORE area as more equipment such as trucks, trailers, rollers and other items will be rent for contruction purposes within the SCORE area. In the end, the revenue and profit will be continued grow.

Heavy lifting equipment

4) Low Price Earning Ratio and net cash company in less than 2

years.

Compared to other logistic companies such as Tasco (PE13.35), Century (PE9.04), Complete (PE10.42)， Harbour among the lowest from this logistic company (PE7.44). Other than that, the company have repaid RM50million debts during last year and have successfully reduced the bank borrowing to RM97milllion while the cash and cash equivalents stood at RM84millions. As the company do not expected to further incurred any CAPEX in near future, hence I expected that the company will be net cash company in less than 2 years time.

5) Sarawak Election

As the Sarawak Election is around the corner, we expected that more project will be given by the central government. Hence expected the activities around these areas of Bintulu to be increased.

6) Other Factors

a) Increase in cargo handling for FY2014

http://www.thestar.com.my/Business/Business-News/2015/04/28/Bintulu-ports-cargo-handling-up-3-63-percent-to-45395mil-tonnes/?style=biz

b) Six Bintulu Ports projects planned