HUBLINE Bhd expects a restructuring, which included exiting its loss-making container shipping business, to start bearing fruit in its financial year just ended, says CEO and managing director Dennis Ling Li Kuang.

He says the Sarawak-based shipping firm is on course to return to the black for the 12 months to Sept 30, 2019 (FY2019), after four years of losses, driven by its profitable dry bulk division. The group lost another RM4.53 million in FY2018, taking its accumulated losses to RM491.98 million since FY2015.

In the nine-month period ended June 30, 2019, it made a net profit of RM438,000 as revenue rose 13.4% year on year to RM84.32 million. It will release its fourth-quarter results next month.

Ling says the group is at the tail end of winding down its container shipping division, which is expected to be completed in FY2019, allowing it to get its underperforming assets off its books from FY2020.

Hubline has been struggling in a tough shipping climate. Soaring fuel costs and low freight rates due to excess capacity in container fleets caused the group to incur losses from FY2015.

According to Ling, Hubline started out as a container shipping company and was doing well until the global financial crisis of 2008 when Brent crude hit US$148 per barrel. At the peak of its business, the group had 24 container vessels with a capacity of between 300 TEUs (20-foot equivalent units) and 1,000 TEUs plying regional routes such as China to Papua New Guinea.

“The container shipping division started to lose money in 2008 as bunker fuel makes up a big portion of our operating cost. We were hit by a double whammy of low freight rates given the overcapacity situation,” he tells The Edge in an interview.

He recalls that the cost of shipping a 20-foot container from Port Klang to Bangkok and from Singapore to Myanmar was about US$500 and US$800 to US$1,000 respectively when crude oil stood at about US$10 per barrel in 1997. However, the rates fell to less than US$300 at a time when oil prices surged to US$148 per barrel in 2008.

To stem the losses, the group announced it was pulling out of the container shipping business in February 2015.

That said, Hubline remains committed to growing its dry bulk shipping portfolio that remains profitable, according to Ling.

The group owns 24 sets of tugs and barges, with a capacity of 8,000 to 11,000 tonnes, and is due to take delivery of another set in November. This makes Hubline the largest tug-and-barge operator in Southeast Asia.

“Going forward, we hope to expand our fleet by two sets per year,” says Ling.

Hubline’s single largest shareholder and vice-chairman Datuk Richard Wee Liang Chiat emphasises that the homegrown company’s focus is to be part of Sarawak’s oil and gas growth story. Citing the role of MISC Bhd as the national shipping company, he hopes to make Hubline its equivalent in Sarawak.

The company  is eyeing long-term contracts with the Sarawak government and Petroliam Nasional Bhd (Petronas) for the transport of methanol products when the RM8 billion plant in Bintulu comes on stream in 2023.

“We have registered our interest with the Sarawak government to become the logistics service provider for the project and they were quite happy [to hear that],” says Wee, who owns 32.38% of Hubline via his private investment vehicle BNDM Incorporated Holdings Sdn Bhd.

He notes that Petronas has been preparing Hubline for the job by familiarising the latter with handling methanol products from the national oil corporation’s existing plant in Labuan to Songkhla and Surabaya.

Wee says the group is already in acquisition talks with a tanker operator but declined to elaborate except to say that “if everything goes well, it will only happen next year”.

“We need to be prudent. We cannot just buy vessels waiting for the contract to come. That is very dangerous,” he adds. Hubline’s total borrowings at the end of June stood at RM80.9 million while its cash and equivalents totalled RM29.2 million, leading to net debt of RM51.6 million.

The restructuring also shifts Hubline from its current structure as a pure-play shipping company to a total logistics player, which Wee says will help it achieve better profitability in the long run.

The group recently acquired a 51% stake in general aviation services operator Layang Layang Aerospace Sdn Bhd as part of plans to venture into the O&G air transport services sector. It will raise its stake in Layang Layang Aerospace to 60% in one to two months, according to Wee.

The acquisition comes with an annual net profit guarantee of at least RM3 million for the three financial years ending Dec 31, 2019, 2020 and 2021.

Hubline, via Layang Layang Aerospace, plans to bid for Petronas’ offshore O&G transport and VIP air transport services contracts in Sabah and Sarawak when they are up for renewal next year. Layang Layang Aerospace currently operates 13 helicopters and eight fixed wing aircraft.

Wee says the fixed-wing aircraft are being used by its flight school, which operates out of two campuses in Ipoh and Kota Kinabalu.

“There are about 140 to 160 students across both campuses, with another 80 on the waiting list. We have signed a memorandum of understanding with Malindo Airways Sdn Bhd to train its cadet pilots, and talks are underway with AirAsia Group Bhd and Malaysia Airlines Bhd to supply pilots for their fleet,” he says.

“We are optimistic about the new businesses that we are embarking on. There are also M&A opportunities for us to look at, which are related to areas that we intend to focus on. For example, there is a possibility of us going into the infrastructural part of the logistics business,” says Wee without elaborating.