$HARBOUR / 2062 (HARBOUR-LINK GROUP BERHAD) – Some Signs of Optimism Sprouting

Harbour just released their Q2 results, and it was slightly up QoQ. However, looking into the details, we can see the shipping segment actually reporting a strong rebound in the recent quarter and the integrated logistics segment is also doing well after paying out the year-end bonuses. Let’s just go through some quick points from the QR:

1. Gross profit at RM 44.8mil, with GPM of around 19%. Net Profit is RM 21.7mil with RM 17.4m as PATAMI and RM 4.4m as Non-controlling interests.

2. Cash balance now rises to ~RM 492mil, with total borrowings of RM 45.6mil. Net cash of RM 446mil (up from RM 425mil previously). Even if you take out other current assets (mostly prepayments which effectively makes them cash but can be a bit gray) the net cash position is still around RM 412m. For reference, market cap is around RM 480mil +-.

3. NOCF is about RM 60mil, with RM 13mil of capex thus leaving FCF of around RM 47mil in 2 quarters. Specifically, this quarter had NOCF of around RM 20mil and FCF of about RM 15mil.

4. Another 3 sen dividend is declared, which is more than supported by core earnings and cash flow. For now, the company has yet to dip into their cash hoard and the net cash-ness has only continued to increase.

5. Surprisingly to me, their machineries segment has performed well due to higher margins in their servicing and spare parts business.

6. Notably, shipping segment rebounded substantially as the year end festive season increased demand and volume for shipping. Revenue increased by 22% but PAT increased by 50% with higher profit margins. This implies that freight rates had actually increased QoQ.

7. Integrated logistics segment also performs well, albeit PAT took a hit due to them paying out their year end bonuses to the staff.

8. The prospects section seemed markedly more optimistic compared to the previous quarters, and the management anticipates an increase in volume after CNY. Domestic trades have stabilized too with less correction, and their agency business remains active and consistent. For the first time in a while, management has turned positive again for the upcoming quarter’s performance.

9. For the integrated logistics division, business remains consistent and again the management guided to be favourable in the coming quarters. They are increasing their fleet to handle more deliveries; and they are seeing an increased demand due to more activities in the O&G sectors.

10. Machinery and Engineering and Construction divisions are also expected to be more active and management also guided that they expect to deliver favourable results in the coming quarters.

If you’ve been following HARBOUR for a while, you know that the management has been having a cautious tone and saying that the performance is expected to decline for the past year or so. However, this is the first QR where the management’s tone has started to turn more positive and it’s encouraging to see the improving numbers. As usual, logistics is the blood of the economy and the performance of logistics companies generally act as a leading indicator for the health of the economy. Bearing in mind that CNY tends to be a low period with many major factories slowing down for the holiday (most people will frontload shipments at the end of the year to target sales for Christmas, New Year’s, and CNY all at once); a number of tailwinds and headwinds are happening at the same time during this period; it would be interesting to see how HARBOUR will perform in the upcoming quarter (Jan-Mar).

While waiting, the dividends are reasonably good and their large cash hoard should protect any extreme downside. Extra bonus if they decide to declare a special dividend, but it’s best not to expect that for now as no indication was ever made for this.