Malaysia Bulk Carriers
Price (21 August 2013) RM1.75
Target Price RM1.90
Dry bulk segment still bleeding
1H13 net profit was below expectations, mainly due to continued losses in the dry bulk division.
Tanker segment posted a small PBT gain of RM2.1m in 2Q13 on the back of better freight rate and higher hire days.
POSH associate earnings contribution was higher at RM18.2m in 2Q13 against RM13.4m in 1Q13. The IPO debut of the associate is expected to be completed in the final quarter of this year.
Maintain NEUTRAL with unchanged TP of RM1.90, pegging it to Sum-of-Parts method.
Earnings below expectations. For 1H13, Maybulk reported a net profit of RM22.2m, translating into a year-on-year decline of -29.5%. Again, the large chunk of earnings was supported by the contribution from its associate, POSH, while the dry bulk division was still loss-making.
Smaller quantum of losses in dry bulk. The dry bulk division posted smaller pre-tax loss of –RM5.2m in 2Q13 as compared to the first quarter of –RM9.9m due to the slow recovery of charter rate. 2Q13 time charter rate improved by +12%qoq to USD9.2k/day. The tanker segment delivered a small gain of RM2.1m in 2Q13 on the back of better freight rate and higher earnings days.
FY13 should be the bottom of the cycle year. The target spending on railway network in China helped improve import demand of iron ore and other dry bulk commodities. The current orderbook for dry bulkers had fell to 17% from a historical high of 74% during the Financial Crisis 2008. Due to limited growth in vessel supply and healthy demand, we reiterate our view that the dry bulk business cycle is at the bottom and we should see a more meaningful recovery by FY14-15.
Stronger contribution in associate earnings. On the bright side, the Singapore associate contributed record earnings of RM18.2m in 2Q13 as compared to RM13.4m in 1Q13. The IPO debut of the POSH group in SGX will be completed by the end of this year with an estimated market capitalization of nearly USD1b upon listing. Maybulk is expected to recognize a one-off gain from the IPO listing of the POSH group.
Maintain NEUTRAL with unchanged TP of RM1.90. We reduce our FY13-14 earnings by –39.1% and -34.5% to reflect the dismal performance of the dry bulk division in 1H13. The continued losses in dry bulk shipping should be moderately negated by the improvement in associate earnings. Hence, we are maintaining our NEUTRAL recommendation with unchanged TP of RM1.90. Our valuation is derived from Sum-of-Parts method (see table below).
Publish date: 22/08/13