Wednesday 19 September 2012

Malaysian Bulk Carriers - Sells Land to Top up Working Capital

THE BUZZ 

Maybulk announced yesterday that it has entered into a Sale and Purchase Agreement for  the  sale  of  three  parcels  of  vacant  land  totaling  RM18.4m.  Maybulk  will  record  an exceptional gain of RM8.92m from the disposals. The proceeds will be used to replenish cash for working capital purposes.

OUR TAKE  

No urgency in selling land. Maybulk currently has net cash of RM250m, which is more than sufficient for its working capital needs at a time when there are vessels to pick up at a bargain out there. As the company’s land bank has been vacant for a very long time and there is a  ready buyer for it, cashing out  of its property investment at a  handsome 80% return is a sensible move. The said land parcels will be disposed of progressively and their sale fully completed by 1QFY13.

Outlook still gloomy for dry bulk players. Although positive in boosting the company’s balance  sheet,  the  land  disposals  do  not  change  our  outlook  for  the  dry  bulk  shipping sector.  The  current  demand  and  supply  imbalance  will  continue  to  dictate  dry  freight rates, which remain depressed. The BDI, currently at 663, is close to the low of 647 hit in February.
 
Maintain SELL. We make no changes to our earnings given that the gains from selling off  the  land  are  exceptional  in  nature.  Maybulk’s FV  remains  unchanged  at  RM1.27, premised  on  a  P/B  multiple of  0.7x,  with  our  SELL  call maintained.  Although  there  is a possibility of management distributing these gains as dividends, we believe that in view of the depressed market, the company is likely to conserve the cash for bargain-hunting opportunities later on.


Source: OSK

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