Harbour-Link set to benefit from SCORE, Rapid initiatives

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Harbour-Link is expected to benefit from SCORE and Samalaju Port in Sarawak, while also gaining from Johor’s Rapid project in the near term.

KUCHING: Harbour-Link Group Bhd (Harbour-Link) is expected to benefit from Sarawak Corridor of Renewable Energy (SCORE) and Samalaju Port in Sarawak, while also gaining from Johor’s Refinery and Petrochemical Integrated Development (Rapid) project in the near term.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), with the economic activity in Sarawak expected to improve substantially moving forward given the government’s numerous initiatives like Score and the completion of Samalaju Port in the medium-term, it believes that Harbour-Link’s logistics business is well poised to benefit from the increase in cargo and trade volume.

Harbour-Link currently provides a full range of logistics services, including land transportation, freight forwarding, warehousing and also equipment leasing and rental services predominantly in East Malaysia.

The group also provides shipping services comprising of shipping agencies, ship chartering, bunkering, containerisation, marine support and tug and barges.

Moving forward, the research arm noted that the group intends to value add to their logistics services by providing 3PL warehousing services, which now include the distribution services for their clients where margins are higher than conventional warehousing.

“At the moment, the only notable competitors are Tiong Nam Logistics and Century Logistics,” it added.

In addition to logistics services, Harbour-Link has an engineering division which provides Engineering, Procurement, Construction and Commissioning (EPCC) services, thus allowing it to potentially gain from Rapid.

“Rapid, in our opinion, will benefit the group as more oil and gas contracts are expected to be rolled out if the initiative materialises.

“As of now, the current remaining orderbook stands at RM50 million with a tenderbook of RM1 billion,” it observed.

Assuming a hit rate of 10 per cent, the research arm expects the company to secure RM100 million worth of contracts to replenish its orderbook.

Aside from SCORE and Rapid, Harbour-Link has recently made its maiden venture into property development. Kenanga Research noted that three years ago, the group managed to acquire 130 acres of industrial land next to Bintulu Port with three main road frontages prior to the run-up in land prices.

The jump in land prices was due the increased pace of activities in Bintulu Port and commencement of operations of some factories in Samalaju industrial area, the research arm observed.

“Estimated gross development value (GDV) of this industrial/commercial township is RM1 billion at an average selling price (ASP) of RM250 per square feet (psf).

“The project does enjoy higher-than-average pretax margins of more than 40 per cent given that land and construction cost only constitute six per cent and 50 per cent of GDV, respectively,” Kenanga Research noted.

It added that so far, the group has launched RM120 million worth of industrials/shoplots with 60 per cent take-ups.

Overall, Harbour-Link is set to stage strong recovery in earnings, according to the research arm, despite the group’s financial year 2013 (FY13) earnings suffering due to a one-off writedown of goodwill amounting to RM25.5 million.

Over FY14-15, Kenanga Research believes that there will be a robust recovery in Harbour-Link’s earnings with an expected two-year compound annual growth rate (CAGR) of 294.8 per cent to RM46.7 million in FY15.

This is assuming the revenue of shipping and logistics topline grows at a two-year CAGR of 3.5 per cent and orderbook for engineering division is to be utilised over a two-year span on top of a contract replenishment assumption of RM100 million per annum.

An additional factor is the commencement of contribution for property in FY15. Net gearing for Harbour-Link is at a comfortable 0.6-fold, the research arm added.

That said, Kenanga Research rated the stock with a ‘trading buy’ with a target price of RM2.00 per share, based its sum of parts (SoP) valuation, which implies a FY15E price earnings ratio (PER) of 7.8-fold.