Maybulk’s FY12 core net profit of RM34.3m was in line with our forecast of RM30.8m, but below consensus estimate. Revenue and earnings sank as the Baltic Dry Index hit a low last year. While time charter rates are unlikely to rebound strongly, the narrowing supply and demand gap for dry bulk vessels and high scrapping activities indicate that the dry bulk market may be bottoming. We upgrade our call on Maybulk from SELL to BUY, at RM1.85 FV, premised on 1x P/BV. The potential exercise or listing of POSH is a potential catalyst.
POSH saves the day. Maybulk reported a FY12 core net profit of RM34.3m (after stripping off disposal and investment gains), in line with our estimate of RM30.8m but below consensus forecast of RM60m. With revenue plunging 39% y-o-y on weak freight rates, Maybulk’s FY12 earnings plunged 67% y-o-y. Both the dry bulk and the tanker segments were in the red, although the overall impact was cushioned by higher contributions from its offshore associate POSH, of which earnings almost doubled to RM35.3n.
Rates still weak. Maybulk’s time charter rates for the dry bulk and tanker segments declined 42.3% and 11.6% y-o-y respectively. While the 4QCY12 spot rates for both dry freight and the clean tanker segments remained weak y-o-y, we note a sequential pick-up in demand for shipments, notably from China’s iron ore thirst. Nevertheless, due to Maybulk’s 45% vessel exposure to period charters, the q-o-q movement in its average time charter rates continued to weaken.
Modernizing fleet to time the next upcycle. Dry bulk markets continued to weaken in January despite strong demand for iron ore from China but there are signs of freight rates possibly bottoming. Although the rates are still depressed versus the highs seen years ago, these appear to be stabilizing, prompting many strong dry bulkers with solid balance sheets to modernize their fleet by buying newly-built vessels as asset prices hit rock bottom. With the newer vessels, the company can cut operating costs by almost half. We understand that Maybulk has ordered three new vessels to be delivered from 2013-2015, on top of three new ones it acquired last year, of which two are a JV with a Mexican partner.
Management still cautious. Despite improving outlook to start buying new vessels, management reiterates a cautious view that rates will not likely recover soon as the demand and supply imbalance in dry bulk vessels persists. Last year saw a record delivery of new builds into the market, with the global dry bulk fleet increasing by 12% y-o-y and this year this year the gap look between supply and demand appears to be narrowing. However, with many shippers in ailing financial condition due to the depressed market and unable to operate its fleet, this has bolstered scrapping activities to a record high, which is positive to attain a healthy balance between demand and supply eventually.
Update on POSH listing. To recap, back in October 2008, Management has decided to to proceed with its proposal to buy 22.08% of POSH from its shareholder, Pacific Carriers Ltd (PCL), at a US$221m price tag, or US$6.50 per share. The aim is to get POSH listed at a price of no less than US$6.50 per share. If POSH is not listed within 5 years, MBC has a put option to sell back its stake in POSH for US$8.125 per share (a premium of 25%). We understand that a decision on whether to exercise the option or hold its POSH share until listing will be made sometime in May or June this year. With POSH earnings to hit RM40m this year, at the acquisition price tag would imply a PE multiplier of 17x which we deem as a fair price. Management may prefer to hold a long term view to extract better valuation.
Trimming earnings. Due to housekeeping and accounting for higher depreciation charges and interest costs to finance its capex expansion, we have decided to trim our net profit forecast for FY13 from RM66.9m to RM51m. We have only assumed that rates will grow by 10% in FY13 and 15% in FY14 and FY15. Earnings outlook moving into next year will be more favorable of which we project to grow by 49% y-o-y as we think that the worse is over for the dry bulk shipping coupled by the higher contribution from POSH.
Upgrade to BUY. POSH’s listing is a catalyst for Maybulk that we have yet to input into our valuation. At the current exchange rate, the company’s cost of USD221m and assuming a 25% premium exercise option, would translate into a valuation of about RM0.85 per share. We like Maybulk’s healthy net cash compared to other regional dry bulkers, which are mostly laden with net gearing. Premised on a higher P/BV of 1x, we upgrade Maybulk to BUY at a FV of RM1.85 (from SELL previously with FV of RM1.10). Maybulk’s 5-year P/B average of 1.6x and is still below its -1 standard deviation of 1.07x.
Update on POSH listing. To recap, back in October 2008, Management has decided to to proceed with its proposal to buy 22.08% of POSH from its shareholder, Pacific Carriers Ltd (PCL), at a US$221m price tag, or US$6.50 per share. The aim is to get POSH listed at a price of no less than US$6.50 per share. If POSH is not listed within 5 years, MBC has a put option to sell back its stake in POSH for US$8.125 per share (a premium of 25%). We understand that a decision on whether to exercise the option or hold its POSH share until listing will be made sometime in May or June this year. With POSH earnings to hit RM40m this year, at the acquisition price tag would imply a PE multiplier of 17x which we deem as a fair price. Management may prefer to hold a long term view to extract better valuation.
Trimming earnings. Due to housekeeping and accounting for higher depreciation charges and interest costs to finance its capex expansion, we have decided to trim our net profit forecast for FY13 from RM66.9m to RM51m. We have only assumed that rates will grow by 10% in FY13 and 15% in FY14 and FY15. Earnings outlook moving into next year will be more favorable of which we project to grow by 49% y-o-y as we think that the worse is over for the dry bulk shipping coupled by the higher contribution from POSH.
Upgrade to BUY. POSH’s listing is a catalyst for Maybulk that we have yet to input into our valuation. At the current exchange rate, the company’s cost of USD221m and assuming a 25% premium exercise option, would translate into a valuation of about RM0.85 per share. We like Maybulk’s healthy net cash compared to other regional dry bulkers, which are mostly laden with net gearing. Premised on a higher P/BV of 1x, we upgrade Maybulk to BUY at a FV of RM1.85 (from SELL previously with FV of RM1.10). Maybulk’s 5-year P/B average of 1.6x and is still below its -1 standard deviation of 1.07x.
Source: OSK
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