$HARBOUR / 2062 (HARBOUR-LINK GROUP BERHAD) – Ending the difficult year of FY2024 with almost RM 1b revenue

Those following the shipping and logistics industry would know that the industry in the past 12 months was really tough. Almost every shipping company fell into losses at some point in this downcycle, including global leaders such as Maersk, Hapag Lloyd, HMM, etc, before the shipping conditions began to improve due to various geopolitical reasons that we have covered quite in depth previously already.

As usual, this is just my notes in breaking down what I see in the quarter report, and is purely for information purposes only. This should not be taken as any investment advice, you should do your due diligence and read the original reports yourselves and make your own decisions. Most of the numbers are rounded for ease of presentation.

Let’s just quickly go through the 4th quarter and full year fy24 results of these very volatile times.

1. Harbour recorded RM 287mil revenue this qtr, with GP of RM 55mil thus leading to GPM of roughly 19%. They recorded a net profit of roughly RM 32.6mil, of which RM 27.3mil are attributable to companies they have controlling stake in, while RM 5.5mil is NCI.

2. After spending close to RM 90mil to acquire 2 new vessels, their PPE rises to RM 405mil. That being said, cash position is still maintained around RM 277mil, whilst investment securities and other current assets make up about RM 155mil. With a debt position of around RM 22.6mil short and RM 28.7mil long, implies total debt of RM 51.3m. This makes their net cash position to be about RM 380.7mil. NTA rises to RM 2.02 per share, after paying out 6 sen of dividends.

3. Taking a look at cash flows, they generated NOCF of about RM 125mil in the year, or about RM 40mil in this quarter. Outside of the acquisition of their new vessels, they typically have capex spent of about RM 10+mil a quarter, so if we just assume a normalized capex, they would have generated about ~ RM 80mil in FCF this year. It’s pretty impressive, to me, that they managed to acquire 2 new containerships (which is a rather big expense) almost purely from operating cash flows, and actually haven’t touched their huge cash pile in this downcycle year.

4. For the full year, shipping segment had ~RM 588mil revenue (60%), integrated logistics RM 217mil (22%), machineries segment RM 132mil (13%), engineering segment RM 39mil (4%) and property development RM 11mil (1%).

5. PBT wise, the breakdown is shipping RM 73mil (60%), integrated logistics RM 42mil (34%), machineries RM 10mil (8%), Engineering -3mil, and property RM 6mil(5%).

6. PBT margins for each segment this year: shipping 12.4%, integrated logistics 19.4%, machineries 7.6%, engineering loss, and property 54.5%.

7. As you can see, the shipping segment’s margins this year took a bit hit compared to the year before, while the integrated logistics segment remained quite stable. This is quite expected, considering the first half of the year, the shipping industry was probably the worst it has been in a long time.

8. Due to the timing of recognition of costs and revenue, the machineries segment this quarter dropped into losses. This answers the question I had last Q, when I was very surprised at the strong results from this segment. Worth noting is their shipping segment hadn’t experienced the margin expansion from the seafreight like global shippers had, while the integrated logistics had a huge improvement this quarter. Property segment had a small sale of land, which they recognized RM 3mil profits.

9. The management continues to remain confident of their future prospects, and guided an improved utilization rate and freight rates in the upcoming 2 quarters. Their new vessels are already in service, so that’s another good sign. The speed is quite surprising, but it’s good to capture as much as the high freight rates as they can.

10. Integrated logistics division also remains positive and management sees improved activities due to recovery in the manufacturing and O&G sectors.

11. For the other divisions too, the management also guides for positive outcomes and overall expects to deliver favourable results in the next financial year.

12. The management declares another 3 sen dividend, bringing full year FY24 dividend to be another 6 sen, or almost RM 24mil, like last year. The ex date for this dividend will be announced after it has been approved at the upcoming AGM. So far, the company has shown a lot of reluctance to dip into their cash pile in spite of continued strong operating profits. The payout ratio is roughly ~30% of PAT, or about 20% of NOCF. It sits at a comfortable payout level, which would be understandable in normal times however I’m just curious what the company plans to do with their ~RM 380 mil of net cash going forwards.

13. For the FY24, and at current market cap of around ~ RM 560mil, this gives them a trailing PE of about 6.6x (or 5.3x including NCI). And just for information purposes only as some people love to use this ratio, would put their ex cash PE of around 1.7x.