Technical | Fundamental Analysis Discussion Stocks Listed In Bursa

Friday, August 1, 2014

NEXT For Barakah, Harrisons

Barakah: In 2009, only 10% of Barakah’s revenue came from installation and construction work with the bulk coming from pipeline and commissioning works. The balance of its order book has shifted over the years as the projects grow in size and complexity, with installation and construction works making up 41% of its revenue.
As at May 2014, its order book stands at rm2.38 billion with the majority of its projects to be undertaken over the next three to five years from 2014 in installation and construction.

Pipeline and commissioning works are the foundation of what it does. That segment will continue to bring in a small and steady stream of income. It will take on more pipeline and commissioning works as well.

A niche segment under installation and commissioning which it entered into is the design and development of biodiesel tanks. Petronas continues its efforts to revive Malaysia’s carbon footprint, it is taking advantage of the fact it is already licensed in the area and is ready to take up into opportunities.

It had secured a rm29 million job from Petronas Dag for the EPCC of biodiesel storage and blending facilities and its associated accessories.

Its installation and construction segment is ripe for the picking having undergone the transition phase.

In April 2014 it had bagged a rm260 million contract for the RAPID project. The Pengerang pipeline project is also expected to open up new opportunities for Barakah involving both onshore and offshore projects once the trunk line is set.

Its borrowings are relatively small and its capex requirement is low. Its short and long term borrowings amount to rm244 million.

It will need to only replenish capex at rm15 million unless big project comes the way.

Its prospects will be bright if Barakah paired down its debts and a lean balance sheet.

Harrisons: It has the distinction of being one of the oldest and largest sales, marketing, warehousing, distribution and services companies in Malaysia.

The company is now on a growth path as it continues to expand its distribution business while actively seeking for new growth areas.

Its share price has been weighed down by a tax payment issue with the Royal Malaysian Customs Department since Feb 2012. It posted a net loss of rm25.18 million in 1QFY2014 ended March 31 compared with a net gain of rm6.36 million in the same period a year ago, following the payment of rm31.5 million as an amicable settlement between its unit and Customs for alleged unpaid import duty, excise duty and sales tax.

Industry observes points out that competition among trading houses has intensified and margins are narrowing and players are facing the risk of a termination of contracts when consumer spending slows.

The 1Q loss was due to the one off tax payment. Excluding the tax it would have made a pre tax profit of rm8.36 million.

There are only three agency houses listed on Bursa dealing in products from MNCs in Malaysia – Harrisons, DKSH and Yee Lee Corp. Their common denominators are steady financial performance, consistent dividends and a generally stable share price.

Following a settlement of the tax issue, its share price reached a year’s high of rm3.72 on 01 July 2014.

However, its profit margins has been trending down since 2010.

The company had formed a JV with Watts Japan and a potential expansion to other SEA countries.

Distribution is still its core business and dominates 80% of its revenue.

It had established a JV to open Komonoya shops, a chain which sells discount goods from Japan, with Osaka based Watts. Harrisons holds a 30% stake.

Following the tie up with Watts, its focus now is Japanese products.

Major shareholder Bumu Raya Intl Holding Company Ltd holds close to 41% stake in Harrisons Holdings Bhd.

The company has its roots in Indonesia. Previous news reports had linked the company to the Bumi Raya Utama Group as well as ex president Suharto’s daughters including Silti Hediati Haryadi.

Bumi Raya has tried to take the company private in 2008 but failed. So could there be another attempt to take the company private? Harrisons MD Chan said it is always a possibility but this has to depend on the major shareholder.

Chan feels there is room for corporate exercises to improve the liquidity such as bonus issues, new share, finding a solid investor or asset injection!

As at end of FY2013 the company was holding rm111 million in cash.

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