Maybulk to gain from dry bulk shipping upturn in 2014, says MIDF Research

by **Cals** Tue 07 Jan 2014, 18:33

Business & Markets 2014

Written by Zatil Husna of theedgemalaysia.com

Tuesday, 07 January 2014 11:02

KUALA LUMPUR (Jan 7): MIDF Research expects Malaysian Bulk Carriers Bhd (Maybulk) will gain from the upturn in dry bulk shipping cycle in 2014 due to the ramp up in iron ore stockpiling activities from China in the second half of last year (2HFY13).

In a note today, MIDF Research said the upturn will further narrow Maybulk’s operating losses in its dry bulk segment.

“We favour Maybulk due to its net cash position and healthy delivery pipeline of vessels which will boost its earnings prospect during the recovery cycle of dry bulk sector.

“Nonetheless, we view that its share price has already priced-in the positive factors as it is now traded at 24x FY14 P/E as compared to its peers’ average of 18.5x.

“Hence, we maintain our Neutral stance on Maybulk with an unchanged target price of RM1.90,” said the research house.

The research house also noted that there is no announcement on the IPO listing of Maybulk’s Singapore-based associate, PACC Offshore Services Holdings Pte Ltd’s (POSH) on the Singapore Exchange.

“If Maybulk opts to sell its entire position in POSH group, it can expect to realise 25% gain over its original purchase price based on the original listing agreement,” said the research house.

The research house said the Baltic Dry Index (BDI) posted a gain of circa 327% in 2013 and closed at 2,277 at the end of 2013, which maintained its recovery momentum.

BDI represents the weighted average of chartering rates for four different sizes of dry bulk carriers.

The improvement was primarily attributable to the ramp up in iron ore stockpiling activities from China in 2HFY13 that resulted in the tightening supply of available vessels.

“In the long term, we expect the recovery of dry bulk rates to be sustainable due to China’s urbanisation and infrastructure projects which remain the main drivers for the demand growth of dry bulk commodities,” it said.

The research house noted that China’s monthly iron ore and coal imports has maintained its upward trajectory with a record import of 77.8mmt in Nov 2013.

“We expect the ramping up of steel production in China to support the import demand of iron ore and thus spur the global dry bulk shipping volume higher.

As at end 2013, the total inventories of imported iron ore in China’s ports stood at 81.3mmt has expanded by +9.8mmt or 13.7% as compared to the first half of the year.

Currently, China’s global steel production accounts for circa 50% of global output with the production level of steel in China is likely to have a profound impact on the world’s iron ore seaborne trade.