Bumpy road ahead for Harbour-Link on slowing sectors, cabotage policy scrap
KUCHING: Harbour-Link Group Bhd (Harbour-Link) still faces many challenges ahead due to the slow engineering, procurement, construction, and commissioning (EPCC) market, analysts say.
Maybank Investment Bank Bhd’s research arm (Maybank IB Research) said the outlook for Harbour-Link is also getting tough due to the scrapping of the cabotage policy with effect from June 2017, which may result in foreign shipping operators competing for the niche East-West Malaysia cargoes.
This was on the back of the group’s third quarter of FY17 ( 3QFY17) whereby 3QFY17 net profit of only RM1 million and first nine months of FY17 (9MFY17) net profit to MYR17 million came below expectations.
It pointed out that Harbour-Link saw weaker results across all the group’s businesses.
“On a quarter-on-quarter (q-o-q) basis, shipping posted stronger revenue with an increase of 24 per cent q-o-q on the contribution of AML Shipping Sdn Bhd whereby it acquired 51 per cent stake in November 2016.
“However, pretax profit was lower at RM4 million (down 55 per cent q-o-q) given the preliminary cost incurred for the new vessel and drydocking cost for its tugs/barges.
“Its logistics division posted higher revenue (up 41 per cent qo-q) but pretax profit was weaker (down 20 per cent q-o-q) due to higher operating costs. Its engineering division posted pretax loss of RM3 million given the slow job replenishment rate.
“With an outstanding orderbook dwindling to circa RM20 million, property division’s earnings was almost nil as it has yet to launch Phase 3 of Kidurong Gateway,” it explanined.
The research team also cut its financial year 2017 (FY17) to FY19 earnings per share (EPS) estimates for Harbour-Link by 43, 35 and 33 per cent as it adjusted its engineering revenue by 40, 10, and 10 per cent.
This was while lowering its FY18 to FY19 shipping earnings before interest, tax, depreciation and amortisation (EBITDA) margin assumption to six per cent (eight per cent previously) as the scrapping of the shipping cabotage policy might result in stiffer competition from foreign shipping operators.
Maybank IB Research also lowered its FY17 to FY19 logistics EBITDA margin by one percentage point (ppt) to factor in the higher operating cost.
All in, the firm downgraded its call on the stock to ‘sell’ from ‘hold’.