• Port and logistics will improve operationally in FY15-16.
• Potential injection of MMC’s ports will revitalise NCB.
• Maintain BUY with an unchanged  TP of MYR3.00 (1x P/BV).

What’s New

Key  takeaways  from  yesterday’s  briefing:  (i)  NCB  is  offering terminal space to its customers for maintenance/storage purposes, to  help  them  to  lower  their  overall  costs.  It  recently  sealed  deals for this value-add service with its two existing key customers, Wan Hai  and  KTMC,  and  a  new  customer ,  PIL.  Management  expects positive volume growth in 2015. (ii) Its logistics business will return to  the  black  (9M14:  MYR27m  pre-tax  loss)  with  the  business rationalisation  exercise  to  be  completed  by  end-2014  and management  aims  to  secure  new  infrastructure-related  trucking contracts  in  FY15.  (iii)  Its  30-year  concession  will  be  renewed  in 1Q15,  which  will  see  NCB  implementing  IC12  and  incurring  high upfront depreciation and amortisation charges. (iv) MMC has yet to share its plans for NCB with management.

What’s Our View

We  are  disappointed  that  the  rare  briefing  did  not  shed  any  light on MMC’s plans after its emergence as a major shareholder in NCB. However,  considering  the  depressed  share  price  (multi-year  low) and valuation (0.8x P/BV), we think the risk-reward is in investors’ favour . Our TP is unchanged, pegged to 1x P/BV , the valuation MMC paid for its 15.7% stake in NCB.

Operationally,  we  expect  NCB  to  churn  higher  EBITDA  in  FY15-16 (+37%/+8%)  on  the  absence  of  business  rationalisation  cost  for  its logistics division and higher throughput volume (+2-5% in FY15-16). However, due to the higher depreciation/amortisation charges and interest  expense  (gearing  up  for  the  purchase  of  equipment  and upgrading  of  wharf  8)  in  FY15-16,  we  lower  our  FY15-16F  EPS substantially by 87% and 78% respectivel

Source: Maybank Research - 4 Dec 2014