Freight Management Holdings Bhd is anticipating an improvement in its earnings for the financial year ending June 30, 2017 (FY17) after losses at one of its subsidiaries are ebbed.
Group managing director Chew Chong Keat tells StarBizWeek that this financial year had seen some improvement itself in the first two quarters.
“The sea freight segment has remained quite strong. And one particular segment that has been badly affected in the last financial year was our tug and barge services segment under the 51%-owned subsidiary TCH Marine Pte Ltd, Singapore. This is not the oil and gas segment which we are also involved in,” Chew says.
“This (subsidiary) company suffered quite a huge loss in the last financial year, with losses close to RM3.5mil, of which we own 51%. But in the first quarter, it saw a turnaround with a small profit. If this unit breaks even at the minimum, it will already give us a lot of breathing space,” he adds.
Freight Management operates seven sets of tugs and barges under TCH Marine, which saw a “poor operating year” in the previous financial year due to low demand.
“Under TCH Marine, we basically take bulk cargo such as construction materials that is used for the cement industry. We also carry granite stones for the construction industry, particularly in Singapore. These tugs and barges move along the Straits of Malacca,” Chew says.
“The last financial year was also a poor year for these bulk commodities and building materials. Everything dropped and there was excess barges in the region, a situation where supply exceeded demand, so it has impacted us.
“But in this financial year, if all goes well, we shouldn’t see such losses anymore. We are conservatively hoping that it will breakeven,” he adds.
He notes that by the end of FY17, Freight Management should see “moderate growth” in terms of profits.
“This should be less than 10%. Even if it is a single digit of about 5% growth, it will still be quite an achievement in such a challenging market. Our internal target this year is a small 5% growth in profit,” Chew says.
“In the past, we also had the tax incentives, which is already over. So this has normalised for us. Even if we do grow like last year, the net profit after tax will still be impacted due to the normalisation of tax rates. But based on the trade outlook, we are still seeing possibilities for us to do well in spite of this,” he says.
The company also has a small exposure in the oil and gas industry through its marine services segment under 50%-owned Transenergy Shipping Pte Ltd, Labuan, and Transenergy Shipping Management Sdn Bhd with Scomi Energy Services Bhd (which owns the remaining 50%).
“This investment, which was initially done in 2013, is obviously not doing so well and this is expected. Oil prices will trigger this impact as the main oil and gas companies will cut down their expenditure, which means less use of services from companies like us,” Chew says.
“We still have work but just that it is not long-term work and this is the challenge. And for FY17, the impact of this will still be there and we just have to sit it out.
“We only have one set of tug and barge here, with a minimal impact to us. Nobody could foresee the oil slump but we are already in it now and when the recovery sets in, we will still have the opportunity to maybe even grow,” he adds.
He says the tug and barge can be used to service other sectors beyond oil and gas if it becomes a necessity in the future.
On its e-commerce venture under 65%-owned FM Hubwire Sdn Bhd, Chew says this segment is still in its gestation period and has recorded some losses in the quarter.
“If not for these new start-ups, we would be relatively flat in terms of profit quarter-on-quarter. FM Hubwire actually provides software solutions for merchants who wants to enter into online retail. We have a one-stop IT and fulfilment solution for the merchants to place their products on the respective marketplaces,” Chew says.
The company recently reported a slight drop in its first-quarter net profit to RM5.27mil from RM5.75mil a year ago on the back of revenues that were slightly higher at RM104.77mil from RM101.99mil previously.
Chew says the slight drop in profit was due investments into the oil and gas and e-commerce ventures.
He says the sea freight segment, which is the core business of the company, continues to do well.
“This segment contributes 67% of our gross profit and it continues to grow,” he says.