Published September 4, 2009

Portek rides distant seas to success

By VINCENT WEE

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IN THE current environment, it is uncommon to hear the words profit and port operator in the same sentence, but home-grown small port specialist Portek is one of the few to beat the odds with its recently announced more than doubling of net profit for FY09 to $8.6 million.

While the profit jump came off a low base of $3.9 million in FY08, which was itself a four-fold spike from just $1 million the previous year, the fact that there has been growth, both in profits as well as throughput, is in itself remarkable.

Consider the fortunes of the much bigger port players in the region. Singapore's headline grabbing port giant, PSA International, the world's second-biggest container terminal operator saw its 2008 full-year net profit fall 46 per cent to $1.04 billion, from $1.93 billion in 2007, its first drop in profit in six years when it reported its results earlier this year. With container throughput at its flagship Singapore terminals already down by nearly a fifth for the year-to-date, it seems unlikely PSA's fortunes will be reversed in this financial year.

Top operator Hutchison Port Holdings last month reported a 35 per cent drop in first-half earnings before interest and taxes to HK$4.49 billion (S$834.1 million), its biggest decline in at least eight years.

It is not exactly a strictly apples versus apples comparison as Portek also has a well-established port equipment engineering business, which contributed about a third of revenue. However, the fact remains that Portek has shown a 4.5 per cent increase in throughput to 718,000 TEUs from 687,000 TEUs.

One may scoff that this is less than what PSA moves at just its Singapore terminals in one month. But it is still revenue and it is rising, unlike many of the other operators. Portek's revenue from port operations and management in fact rose 17.7 per cent to $88.6 million and now comprises about 64 per cent of group revenue.

The key to Portek's success may lie in founder and managing director Larry Lam's cheerful motto that 'We go where no one wants to go'. In a few short years, Portek has transformed itself from a mainly port equipment supplier to become a successful port operator, managing ports in Algeria, Indonesia and Malta and in the last two years acquiring a 25-year concession to operate and manage two ports in Gabon.

Many of these areas are off the main shipping routes and have economies and trade patterns that do not run in sync with the global economy. The Africa geographical region is extremely lucrative for Portek, making up 45 per cent of revenue. The Algeria port operations, for example, have seen a 40 per cent increase in throughput, Portek revealed at a recent briefing.

The question that next arises is how growth will be sustained in the future. In response, management has said that all their terminals have more capacity available and they expect throughput to increase as these underdeveloped economies also expand their trade. In addition, Portek is also looking at more port management deals as it builds its expertise and experience in this sector. Here, management will focus on the massive but undeveloped Latin American region, as well as build on its wins in Africa and Asia.

But investors should note that the pace of development in these regions is slow and often riddled with bureaucracy and other potential pitfalls. Portek has taken writedowns from problems in Indonesia and elsewhere previously, although management assures that those days are behind it and they are now wiser and more savvy at making deals.

Portek also has the benefit of being boosted by its port equipment business and potentially in future by its nascent port IT and automation business. The pipeline of contracts here seems strong with net contract work-in-progress liabilities rising from $180,000 in FY08 to $1.3 million in FY09.

Despite teething problems in the past, Portek is shaping up to be a good counter-cyclical play in the shipping and transport sector.