BY JOSE BARROCK
THE industry may be faced with stiff competition but local shipping company Halim Mazmin Bhd is not deterred. The company, according to executive chairman Tan Sri Halim Mohammad, will expand its fleet while looking out for good acquisitions.
“Looking for additional vessels is not something new to us, we have always been on the look out for good acquisitions. We do, after all, have the finances, and the expertise in the industry,” he says in an interview.
Prior to venturing into Halim Mazmin about 22 years ago, Halim earned his stripes in several shipping concerns, among others Harrisons & Crossfields, and even Esso Production Malaysia.
Halim Mazmin, as at end December 2002, had RM74.40 million cash in its coffers.
An analyst from Am Research says that Halim Mazmin is currently in negotiations to acquire new vessels and is in the midst of looking for long-term charter contracts before acquiring the vessels. Clearly, this is part of the company's defensive strategy to maintain profitability.
Typically, Halim Mazmin does acquisitions via joint ventures with large shipping concerns where it holds a majority or controlling stake in the joint ventures.
“Halim Mazmin could in the next one or two quarters strike a deal to acquire vessels to enhance its long-term earnings base. The company is looking, and studying a few proposals to acquire more vessels,” the analyst from Am Research says.
Hilmi Mokhtar, senior analyst at OSK Research says the company officials have indicated interest in a tanker, as opposed to a container vessel as the container shipping industry is still experiencing excess capacity.
“Halim Mazmin officials say that the company will look into acquiring ships that provide an internal rate of return of at least 12 per cent a year, and it is likely the company will be acquiring the vessel sometime this year,” he adds.
“Assuming Halim Mazmin takes 60 per cent of a joint venture company in the new vessel, and acquires a tanker costing some RM100 million, the local company's share would be in the region of RM12 million, after deducting the banking costs in the event of a 20 per cent down payment, and 80 per cent loan,” Hilmi elaborates.
With the current situation of overcapacity and new buildings at fire sale prices (discounts of between 30 per cent and 40 per cent), and the long-term charter contract strategy employed, the timing for Halim Mazmin's expansion seems right.
Halim Mazmin has tie-ups with several large shipping companies, among others, Senator Lines GMBH of Germany, Nippon Yusen Kaisha Lines, the largest Japanese shipping company, Kien Hung Shipping Ltd of Taiwan, and Petroliam Nasional Bhd (Petronas).
Halim Mazmin currently has a total of nine vessels, four tankers, four container ships and one bulk carrier. The four container vessels are time-chartered to Senator Lines and Kien Hung Shipping respectively, while the bulk carrier is similarly chartered to Nippon Yusen Kaisha.
The company's oil tankers are chartered out to oil giants like Petronas, Esso and Shell, with bunker fuel prices pegged to market rates, and the oil giants being charged for the difference in fuel costs, leaving Halim Mazmin without theworry of additional costs.
Halim says, “Yes, our strategy of assuring charter contracts before acquiring is defensive, but it has brought us the desired results. While other companies of our size have been badly hit by the challenging economic climate, we at Halim Mazmin have prospered.”
OSK's Hilmi adds: “The shipping business is capital-intensive due to the high cost of investment in acquiring ships. Halim Mazmin's strategy, insisting on time-charter contracts before acquiring a vessel, ensures a consistent stream of income and earnings,” he points out.
The analyst from Am Research notes that even with the declining spot rates and increasing insurance costs , Halim Mazmin will not be affected due to the long-term charter contracts governing the terms, such as fuel costs and rates of the contract.
“We believe in long-term charter contracts ensuring secure earnings ... our partners are very strong, internationally reputable shipping companies,” Halim says.
The largest contributor is the tie-up with Senator Lines, with some 35 per cent of Halim Mazmin's earnings, followed by Nippon Yusen Kaisha with some 18 per cent and Petronas 15 per cent.
Halim adds that the government's aim to make Malaysia a maritime nation, providing loans such as the Shipping Finance Fund of RM1 billion will ensure the growth of shipping companies, as it eases the acquisition of vessels.
“From our results, you can see that we have braved the storm, we have achieved good results despite the economic challenges, we have a very prudent hands-on management team, and we at Halim Mazmin are confident of another good year ahead,” Halim notes.
OSK's Hilmi echoes the same tune. “Halim Mazmin should maintain its profitability in the current year despite a slowdown in world trade as a result of Iraq being invaded by the United States.
“In Halim Mazmin's case, as the joint venture parties are strong, there is no fear, or risk of non-payment after a charter contract is concluded. Even during the most challenging times between 1998 and 2000, when the financial crisis and technology bubble burst, the company did not suffer from any non-payment problems,” Hilmi adds.
A pressing issue, however, is the expiry of the local company's contract with Senator Lines, set to end in 2004. Two of the local company's container vessels, the American Senator and Japan Senator, are chartered out to German shipping giant.
However, Halim, who has a 54 per cent stake in Halim Mazmin, says the company should have no problems getting an extension on the contract. “We will definitely get an extension ... we have an excellent track record, and we have made good profits, from day one, increasing profits regularly every year.
“Since our initial public offering (in February 1996) one lot of our shares has grown (with the irredeemable convertible unsecured loan stocks issued and a three-for-two bonus issue) to five lots.
“The initial public offering price was at only RM2, we (Halim Mazmin) have an average return per annum of some 30 per cent,” Halim says.
Hilmi agrees: “The company has a good track record, further the container shipping market should pick up or recover by then. Many of the uncertainties in the shipping industry should have been cleared by then”.
In the past couple of years, the company has grown by leaps and bounds. In 2001, growth was spurred by an easing in lending rates, which suited Halim Mazmin well, reducing the company's foreign currency-denominated loans.
In financial year ended December 2002, group sales fell marginally to RM132.76 million while net profit rose by 11.7 per cent to RM27.70 million.