Maybulk’s dry bulk and tanker segments to perform better

by **Cals** Thu 10 Apr 2014, 13:40

Business & Markets 2014

Written by Kenanga Research

Thursday, 10 April 2014 10:30

Malaysian Bulk Carriers Bhd
(April 9, RM2.15)
Maintain outperform with target price of RM2.53: Maybulk submitted its audited financial year 2013 ended Dec 31 (FY13) financial statements to Bursa Malaysia on April 8 with a negative deviation of 11.5% from the unaudited profit after tax and minority interest.

According an announcement by Maybulk, a joint venture of its associate, PACC Offshore Services Holdings Ltd (POSH), had made an allowance with regard to the recoverability of a certain trade debt which had caused the associate’s results (at profit before tax level) to be RM5.8 million lower.

This came as a surprise to us being the first earnings deviation from unaudited results but we take comfort that this was caused by an associate rather than its subsidiaries.

We are slightly negative on this as it raises uncertainty with regard to whether POSH’s earnings will be affected again in the future due to more write-downs of trade debts.

However, we treat this as a one-off event judging by POSH’s track record. We believe that with the still bullish offshore support vessel market expected in 2014, further significant write-down on trade debts will be unlikely.

On POSH’s pending initial public offering on the Singapore Exchange, we believe that this earnings deviation will be just a mild dent to the positive sentiment of investors as we opine that POSH will still be able to obtain favourable IPO pricing given that: (i) 12 vessels are to be delivered in 2014 which will be the key driver for POSH’s FY15 earnings; and (ii) the overall market for OSV operators is positive as charter rates are expected to remain strong in 2014.

The dry bulk segment, to which Maybulk has the highest exposure, is expected to fare better in 2014 due to the narrowing demand and supply gap of dry bulk vessels globally, and robust iron ore demand for stockpiling from emerging markets.

We expect a slightly better performance for its tanker segment in FY14, as we see a higher tendency for this segment to improve rather than worsen due to recovery in the global economy and possibly better charter rates for tankers.

As we had imputed flattish earnings contribution from POSH over the next few years which is conservative given its planned expansion, we decided to maintain our forecasts for now pending the launch of its prospectus. Our price-to-book value driven target price is maintained at RM2.53 based on 1.3 times FY14 book value per share. — Kenanga Research, April 9

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This article first appeared in The Edge Financial Daily, on April 10, 2014.