MAYBULK (FV RM1.46 - SELL) 1QFY12 In Rough Seas

Maybulk’s core earnings, which missed our and consensus estimates by a huge margin, sank by half as time charter equivalent (TCE) rates continued to see pressure from  oversupply in  the market, with recovery expected only in 2014.  Associates and JV became key contributors to Maybulk’s core earnings by accounting for as much as 70%, thanks to non-operational gains. With  FY12 earnings slashed by 22%, we maintain our SELL call and lower our FV to RM1.46 premised on a lower P/BV multiple of 0.8x.

Sinking below. Maybulk reported a set of disappointing results for 1Q. Core net profit (excluding exceptional gains and losses) came in at RM17.4m (q-o-q: +19%, y-o-y:  -53%) on the back of RM46m in revenue (charter earnings) (q-o-q:  -20%, y-o-y:  -46%). The reported earnings were significantly below our and consensus full-year forecasts of RM85.2m and RM101m respectively.

Associates came to the rescue. The lower  profitability was in tandem  with the lower TCE, which slipped by 50% for dry bulk and 20% for the product tanker division, coupled with high bunkering costs squeezing its bottom-line.  Against the average BDI index which slipped by only 37% y-o-y in 1Q2012, Maybulk’s TCE has underperformed. The dry bulk fleet utilization rate came in only marginally higher, which we think is still positive despite the continued oversupply situation in the market, slow iron ore trade, weather disruptions in Brazil and cyclones in the west coast of Australia. On the product tanker side, the sharp drop in hiring days of 13% was largely due to refinery shutdowns in Europe and America, dragging the division  into the red. Associate  PACC Offshore Services Holdings (POSH) saw its contribution increasing substantially by 3.4x to RM8.1m, but this was somewhat boosted by forex and disposal gains. Nonetheless, POSH is seeing operational improvements given the higher utilization and charter rates in 1Q. We make no changes to our earnings from POSH despite 1Q already accounting 40% of our full-year forecast given that the numbers were lifted by exceptional gains.

70% of Maybulk’s 1Q earnings were contributed by its associates and JV. Outlook still tough. The outlook remains challenging in the dry bulk segment given the oversupply situation, amid slowing iron ore demand from China and a ban on nickel ore exports by Indonesia. While vessel scrapping is expected to be higher than in 2011, this will not be enough to mitigate the oversupply conditions. We expect this to continue into 2013 and a slight recovery is only  anticipated in 2014. The fact that China is seeing a downshift in demand, Indonesia is banning iron ore exports, and Vale is prohibited from entering China ports reinforce our view that there will be further downward pressures for an industry that is already in a glut. We trim our FY12 and FY13 earnings by 22% and 8% respectively on higher bunker cost impact. We maintain our SELL call and lower our FV to RM1.46, premised on a lower P/BV multiple of 0.8x (from 0.85x previously).

Source: OSK