NCB- a attractive utility stock

Background

NCB  Holdings Bhd ('NCB') is involved in port operations, management of a distribution centre, warehousing and freight forwarding services. These activities are carried out by 2 subsidiaries, Northport (Malaysia) Bhd and Kontena Nasional Berhad.

Recent Financial results

For QE30/6/2012, NCB's pre-tax profit increased by 7% q-o-q or 36% y-o-y to RM63 million while revenue increased by 8% q-o-q or 10% y-o-y to RM261 million. Its net profit is mixed- declined by 10% q-o-q but rose by 55% y-o-y to RM45 million. The drop in net profit was due to higher effective tax rate as certain expense items were not tax deductible.

The improved financial performance was due to higher revenue generated by the logistics operation while the port operation remained relatively unchanged. 

Table 1: NCB's last 8 quarterly results


Chart 1: NCB's last 17 quarterly results

Financial Position

As at 30/6/2012, NCB's financial position is deemed very healthy. Its current ratio was at 2.3 times while gearing ratio was only 0.01 time. In fact, the borrowings totaled RM19 million pared in comparison to cash reserves of RM345 million or shareholders' Funds of RM1.409 billion.

NCB paid out a huge special dividend of 56 sen in May this year. With annual operating cash flow of more than RM200 million, NCB could maintain its high dividend payout which has been rising steadily over the past4 years. However, I do not think that a special dividend of 56 sen can be maintained for long unless the company undertakes borrowings to pay out its dividend- something which I do not think is likely for this conservative company.


Chart 2: NCB's dividend payout for last 17 quarterly

Valuation

NCB (clsoed at RM4.27 yesterday) is now trading at a PE of 11 times (based on last 4 quarters' EPS pf 38.2 sen). Assuming a dividend payout of 37 sen (as per FY2010 instead of 73 sen as per FY2011), NCB's dividend yield is 8.7%.  For a utility company, I expect this dividend payout to sustain. As such, investors who are looking for income & a bit of growth should seriously look at NCB.

Technical Outlook

NCB broke above its long-term downtrend line in 2009. Its current uptrend dates back to 2003. Its immediate resistance is at RM4.60 and then at RM5.80.


Chart 3: NCB's monthly chart as at Aug 28, 2012 (Source: Tradesignum)

Conclusion

Based on good financial performance, healthy financial position, attractive valuation & positive technical outlook, NCB is a good stock for long-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, NCB.