SHIPPING concern Halim Mazmin Bhd, with its stable earnings stream, is “an excellent choice for an investor building a defensive portfolio”, said Mayban Equity Research.
Since 90% of its earnings were secured by way of time charters, the locked-in rates insulated the group from excessive fluctuations in shipping rates, it said.
Historically, Halim Mazmin has paid out increasingly higher dividends year after year, with the payout ratio growing from 4.2% in 2000 to 18.9%. Going forward, the group had the capacity to pay out more dividends, given its strong cashflow and “concession-type” earnings stream, it added.
The research house noted that Halim Mazmin had been resilient during economic downturns. Over the past five years, the group has managed to stay in the black, and registered a pre-tax margin of 22.7% in financial year 2003 (FY03). Its strong performance was largely due to low rates on term loans of between 4% and 6%; efficient operations; and virtually zero tax rates.
Its customers are all reputable charterers such as Petroliam Nasional Bhd, NYK Lines, Mediterranean Shipping Co and Hamburg Sud. Securing these contracts was not easy and required an unblemished track record.
The company has, over the years, won numerous awards, including Transport Company Excellence 2001 (from Chartered Institute of Transport), AMVER award (from the US Coast Guards, 2000), Safe Ship Award (from Shell Malaysia, 1994 and 1996), as well as the ISO9002 certification (from Sirim Malaysia, 1994).
Halim Mazmin has a fleet of eight vessels with a combined 306,564 deadweight tonnes (DWT). The diversified fleet includes clean product tankers, container vessels and dry bulkers. Its Meridian Polaris is the largest bulk carrier in the Malaysian ship registry at 149,475 DWT. All its vessels are wholly-owned except for the Meridian Polaris in which it has a 51% stake.
Halim Mazmin’s business can be categorised into three segments: ship owning and ship operating; ship management; ship broking and ship chartering.
The local shipping industry is still in its infancy and players in the sector are rather fragmented with a substantial number of small operators. Of particular concern is the lack of participation among local shipping entrepreneurs in the carriage of inbound-outbound Malaysian cargo.
Halim Mazmin's management has indicated that less than 7% of the country's products are transported via Malaysian ships, resulting in RM12bil annual outflow.
Based on the latest figures from the Statistics Department, the transport component of the balance of payments, which includes shipping, was in deficit of RM13.3bil in 2003. In the first quarter 2004, the transport service was in deficit of RM3.8bil, and on an annualised basis could register a deficit of RM15bil.
To increase the participation of Malaysian-owned vessels, the Government has introduced tax waiver for owners of Malaysian flag vessels; and RM1bil in shipping fund under the New Malaysian Shipping Finance Fund, which offers financing cost of 5%–7%, with a financing margin of up to 75% of the vessel’s cost.
Halim Mazmin’s tanker division contributed about 20% to group turnover in FY03. The prospect of this division remains encouraging owing to the increase in Malaysia's crude oil production and rising crude oil prices. Its dry bulk division contributed about 15%.
The research house believes the container division will remain the group’s main revenue generator, accounting for 65%–70% of group revenue in the future. The outlook for the container industry remains firm this year with the supply and demand conditions relatively balanced, driven by US-led recovery and continued growth in Asian exports, particularly China. Capacity is expected to rise going into 2005 and 2006 with the increased supply of vessels, and rates anticipated to soften.
“However, we believe that Halim Mazmin is somewhat buffered against the declining rates since its contracts are mostly on long-term time charters (rates are locked in), with the some contracts extending even up to 2010. Chances of contract renewability are high, given its operational track record,” the research house said.