Harbour Link to leverage on Sarawak’s rising logistics demand
KUCHING: Maybank Investment Bank Bhd (Maybank IB Research) believes local player Harbour-Link Group Bhd (Harbour-Link) will see its earnings naturally leveraged to the construction upcycle and rising logistics demand in Sarawak.
The research house in its initiation coverage on the Sarawak-based logistics player affirmed Harbour-Link’s dominance in East Malaysia’s logistics industry, with a market share of more than 50 per cent and a solid track record.
“Presently, the group is benefitting from the logistics demand from the local construction industry (such as the PETRONAS Train 9, Samalaju Industrial Park, Balingian power plant) and industries at Samalaju Industrial Park,” Maybank IB Research detailled in its coverage.
“Harbour-Link’s dominant market share in the integrated logistics industry in East Malaysia is backed with a solid track record in its logistics, shipping and engineering Works businesses.
“Its strong operational track record is also mirrored in its impressive financials; the group’s core net profit has grown at a robust nine-year cumulative annual growth rate (CAGR) of 34 per cent on the back of a revenue CAGR of nine per cent and steady margin expansion.”
With industrialisation and development in Sarawak to gather momentum underpinned by the Sarawak Corridor of Renewable Energy (SCORE) program, Maybank IB Research believed Harbour-Link is poised to be a main beneficiary, riding onits integrated logistic services offering, which make it a one-stop centre for contractors and project owners.
“We believe the group stands a good chance in winning logistics contracts for the mammoth construction projects, such as the Baleh and Baram Hydro-dams.”
Unlike most construction and building material stocks, Maybank Ib Research believed investors price-in zero-upside to Harbout Link from the 11th Malaysia Plan and SCORE, due to the lack of understanding of its businesses and its strong capability.
“In addition, the stock is under-researched with zero brokers’ active coverage,” it highlightedThus, we believe the stock will see a re-rating once this reality is better understood.”
Given management’s positive outlook on the logistics demand in Sarawak and the high utilisation of its warehouse/yard areas, Harbour Link plans to expand its warehouse/yard space, particularly in Kuching and Labuan.
To note, the group has budgeted for a capital expenditure ofR MYR10 million per annum for the next two years, for the purchase of additional equipment and the construction of warehouses.
“We note that a key earnings driver for this segment in the near-term is the handling of the raw materials and finished products for the heavy industries at Samalaju Industrial Park,” Maybank IB Research added.
“We believe some of the heavy industries at Samalaju Industrial park are already Harbour-Link’s existing customers and we expect the upcoming heavy industries to engage the groupfor its port-to-door and door-to-port service.
“In the medium-to-long term, we think the group may also consider expanding into third party logistics (3PL), which makes it a door-to-door logistic player (from port-to-door presently).
“This will help the group in securing more West-East Malaysia logistics contracts from manufacturers with manufacturing facilities in Peninsular Malaysia, but which export their products to East Malaysia.”