Monday, August 12, 2013

Malaysian Bulk Carriers - Bulk losses erode firepower (CIMB)

Malaysian Bulk Carriers -
Current RM1.87
Target RM2.00
Bulk losses erode firepower

Maybulk has been run by excellent hands over the past decade, giving significant returns to shareholders during the dry bulk boom years. What worries us now is that dry bulk losses are eroding the cash balances that are needed to pursue more aggressive vessel purchases. We downgrade from an Outperform to Neutral as we lock in the gains from a 26% rise in its share price over the past three months. We do not believe that a POSH IPO will further rerate Maybulk. Our target price is still based on SOP, and we have raised the SOP on a stronger US$ and rising secondhand vessel prices. This is partially offset by the cuts in our FY13-15 earnings forecasts due to weaker-than-expected spot rates. We recommend to switch to Pacific Basin.


We downgrade from an Outperform to Neutral as we lock in the gains from a 26% rise in its share price over the past three months. We do not believe that a POSH IPO will further rerate Maybulk. Our target price is still based on SOP, and we have raised the SOP on a stronger US$ and rising secondhand vessel prices. This is partially offset by the cuts in our FY13-15 earnings forecasts due to weaker-than-expected spot rates. We recommend to switch to Pacific Basin.

Master operator
During the 2003-2008 dry bulk super-cycle boom, Maybulk disposed many of its ships as it treats its ships as tradeable commodities. This earned Maybulk handsome profits, which were then shared with equity investors via the payment of high dividends. As a result, Maybulk is now sitting on RM276m in cash and investments, against just RM86m in debt. Between 2008-10, Maybulk acquired 11 ships, of which six were on long-term leases, because it did not believe that ship prices were yet at the bottom. This turned out to be another smart move. However, at the moment, Maybulk is waiting to take delivery of just six dry bulk vessels between 2013-15. Given that secondhand prices are now rising, we wonder aloud if Maybulk has waited too long to make more aggressive acquisition moves.

Near-term pain
Maybulk has been making losses in its dry bulk division for the past three consecutive quarters, because the charter hire on its six long-term charters is likely higher than the current low spot rates. We estimate cash losses of some RM21m over the past three quarters, which could persist as the charter periods are 3-10 years long. This unwanted cash drain erodes the firepower that Maybulk has to acquire ships, and is one of the key issues holding Maybulk back from reporting better earnings.

POSH to make a splash?
We have valued POSH in Maybulk's SOP calculation at US$276m, which is based on a 25% premium to its cost, realisable via a put option granted by Pacific Carriers. Based on our calculations, an IPO is not likely to value POSH more than the above.


Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 05/08/13

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