Maybulk to ride on turnaround

Business & Markets 2013
Written by Shalini Kumar of theedgemalaysia.com
Thursday, 09 May 2013 09:37
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KUALA LUMPUR: MALAYSIAN BULK CARRIERS BHD [] (Maybulk)
could be one of the biggest beneficiaries of the turnaround in the bulk
shipping market, according to a HwangDBS Research report yesterday.
Despite bulk markets starting off poorly this year, the research firm
believes that the market will inch towards an inflection point in the
second half of this year (2H 2013).
The report said shipowners were barely breaking even at current
depressed charter rates, which have plunged 70% since 2010.
However, as new deliveries of vessels drop — orders for bulk carriers
are estimated to comprise only 5% of the global fleet next year
(compared with 77% in 2008) — coupled with still healthy demand
thanks to the relatively resilient Asian economies, Maybulk could be one of the largest beneficiaries of the turnaround, said
HwangDBS.
But in a statement included in Maybulk’s latest annual report released on Monday, CEO Kuok Khoon Kuan had, however, said
this year would be a replay of last year as uncertainties and overcapacities persist.
“Volatility and opportunities will abound and will decide the fate of the shipping companies that are still operating. Scheduled
newbuilding deliveries will be heavy in 1H 2013 but will slow into 2H 2013. This suggests continuing market weakness and the
possibility that record scrapping as seen in 2012 will persist into 2013.”
However, Kuok said the bright side would shine on the offshore market, which continues to remain strong and retains its
positive outlook due to expectations that oil and gas majors will increase their existing production levels, and accordingly will
increase their capital expenditure for drilling and the maintenance programmes.
HwangDBS feels that the potential listing of Maybulk’s 21%-owned associate PACC Offshore Services Holdings Pte Ltd
(POSH) will be a major re-rating catalyst for the company.
“Its strong growth trajectory will continue to be driven by the booming offshore OSV market — evidenced by 107% earnings
growth in FY12 — and the delivery of about 15 vessels these two years. Our back-of-envelope calculation shows Maybulk’s
stake in POSH is conservatively worth RM870 million (55% of Maybulk’s market capitalisation).”
HwangDBS has reinstated its coverage of Maybulk with a “buy” rating and a target price of RM2.10. With its shares on an
upward trend over the last six months, Maybulk closed 5 sen or 3.14% higher at RM1.64 yesterday.
“Recent share purchases by the directors support our view that Maybulk is primed for a major re-rating. It has a solid balance
sheet with net cash (8.4 sen/share) which will be handy for bargain acquisitions and would allow it to pay decent dividends,”
said the research firm.
As of Dec 31 last year, Maybulk had RM190.1 million in cash and cash equivalents, RM91.9 million liquid assets in the form of
equity investments and RM106.6 million of bank borrowings.
Hwang DBS said share price weakness arising from Maybulk’s potentially weak 1Q13 results will be a good opportunity for
investors to accumulate the company’s shares.
For FY12, Maybulk reported a net profit of RM66 million, a 38.8% decline from the RM108 million recorded in FY11. Revenue
dropped to RM262.3 million from RM364 million in FY11.
Maybulk proposed a final dividend of 3 sen for FY12, representing a payout ratio of 45%.
“It was inevitable that 2012 would be a difficult year for the bulk shipping industry, plagued by the weak global economy and
aggravated by tonnage oversupply,” said CEO Kuok in the annual report.
Looking forward, Kuok added that demand is expected to come primarily from China, India and the other emerging countries
in Asia which have seen greater economic and population growth.
“What lies in store depends not only on the state of global economies in respect of major bulk demand but also the grain
trades which has helped support the bulk trades in early 2013 when US suffered its worst drought since 1950s.”
“All in all, although market conditions remain difficult for the bulk sector, green shoots for recovery appear to be sprouting
leading us to reinvest back into the market,” he added.