KUCHING: Analysts have deduced that Harbour-Link Group Bhd (Harbour-Linkk) is a compelling logistics play in the growing local East Malaysian market given the group is well-poised to benefit from the Sarawak Corridor of Renewable Energy (SCORE) initiative with Samalaju Industrial Park.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), Harbour-Link is expected to benefit significantly from the expected vibrant economic activities driven by the SCORE initiative as spearheaded by the state government.
Delving deeper into the issue, Kenanga Research noted that Samalaju Industrial Park, which is situated in Bintulu, is one of the green fields earmarked to be developed under SCORE.
It pointed out that this is expected to create more opportunities for Harbour-Link as there will be higher demand for logistics services for project cargo and also other types of cargo.
“Adding to that, the development in that area will also have spillover effects on overall economics of the areas near Samalaju,” the research arm observed.
Other than benefitting from SCORE, Kenanga Research noted that Harbour-Link also has plans to develop a 130 acres land with into a mixed commercial and industrial zone with a potential gross development value (GDV) of RM1 billion spanning over 10 years.
“The project is expected to generate strong margins due to their low land cost with land and construction cost expected to constitute only six per cent and 50 per cent of GDV, respectively,” the research arm said.
Kenanga Research further noted that response from buyers has been encouraging so far with 60 per cent take-up rates for the first phase of the project launched, which is estimated to be worth circa RM120 million.
“Assuming 40 per cent pre-tax margin, it could contribute RM48 million to the group in financial year 2016 (FY16),” it surmised.
On Harbour-Link’s financial standing, the research arm noted that in FY13, the group’s earnings took a hit due to an RM25.6 million impairment of intangible assets as the company took the opportunity to rid its accounts off the excess baggage.
“We take this as a positive move as this results in minimal intangible assets on the balance sheet which leaves little room for further impairments,” it opined.
On the other hand, Kenanga Research pointed out that earnings are expected to gather steam with an expected two-year compound annual growth rate (CAGR) of 7.3 per cent.
It noted that this will mainly be driven by 7.4 per cent two-year expected CAGR in logistics division revenue due to new 3PL warehousing contract secured and Petronas Train 9 Project for Bintulu and 10.1 per cent CAGR in engineering division driven by stronger expected orderbook replenishment.
Overall, despite recent strong showing of the share price, the research arm believes that it is still not too late to take a position in this stock.
As such, Kenanga Research initiated coverage on the stock with an ‘outperform’ call and a target price of RM2.20 per share based on sum of parts (SoP) valuations implying a forward price earnings ratio (PER) of 11.5-fold based on FY15 earnings.