Price (27 Nov 2013) RM1.72
Target Price RM1.90
Dry bulk losses mitigated by associate earnings
9M13 net profit was below expectations, accounting for 57% and 66% of ours and consensus forecasts.
Earnings were dragged down by operating losses in dry bulk and tanker divisions.
Maintain NEUTRAL stance with unchanged TP of RM1.90, based on sum-of-parts method.
Still disappointing results. 3Q13 net earnings came in at RM8.1m (- 52%yoy, -38%yoy), bringing its 9M13 accumulated profit to RM30.3m. The 9M13 net profit was below expectations at 57% and 66% of ours and consensus full year estimates. Dry bulk and product tanker divisions posted operating losses of -RM3.5m and -RM2.4m respectively. The dry bulk division did not fully benefit from the recent rally in Baltic Dry Index (BDI) as its locked-in charter rate was lower than the spot market rate in 3Q13.
Narrower losses for dry bulk shipping. Nonetheless we saw further improvement in dry bulk shipping business as its operating losses was down from -RM5.2m in 2Q13 to -RM3.5m in 3Q13. The 3Q13 freight rate was up by +6.3%yoy due to recent import rush for iron ore commodities in China. The optimistic outlook in dry bulk shipping had spurred the group to seek for more aggressive expansion in its dry bulk fleet. A total of seven dry bulk carriers are in the delivery pipeline for the next three years.
Surprise losses in tanker division. The product tanker division unexpectedly incurred operating losses at -RM2.4m in 3Q13 and we believe that the lower hiring days (-11%yoy) had contributed to the underperformance. Its associate, POSH Group, contributed stronger earnings at RM13.9m (+44%yoy) due to the ramp-up of offshore activities in Singapore. The impending IPO of POSH Group is expected to crystallize USD245-290m into Maybulk’s valuations.
Short run in BDI rally. The freight index failed to maintain its upward momentum after it almost hit a two-year high of 2,146 points and is now trading range-bound at 1,500 levels. The rally was basically driven by the China’s iron ore restocking activities in September. Moving forward, we expect the BDI will head into slow revival due to healthier growth in demand and supply.
Maintain NEUTRAL recommendation with unchanged TP of RM1.90. We lowered our earnings FY13-14 earnings forecast by - 20%yoy and -11%yoy to incorporate the continual sluggish freight rates in dry bulk shipping. We do not foresee any significant share price increase with the listing of its associate, POSH Group, as the current share price has already priced in the positive factor. Furthermore, its earnings are still dragged down by its dry bulk division. Hence, we maintain our NEUTRAL stance with unchanged TP of RM1.90. Our valuation is based on sum-of- parts method.
Publish date: 28/11/13