Sailing with the wind
Bulk losses have generally narrowed over the recent quarters as the bulk rates have gradually improved amid slowing bulk carrier supply growth. We expect profits to rise in 2014 due to smaller bulk losses and stronger offshore earnings.
Under our new rating structure, our Outperform call on Maybulk changes to Add. Our forecasts and SOP-based target price are maintained. Share price rerating catalysts include the expected narrowing of dry bulk losses over the medium term as freight rates recover on the back of a slower pace of newbuilding deliveries.
Maybulk posted 3Q13 core earnings of RM6m, a turnaround from 3Q12's RM2m loss. Although the bulk division clocked its fifth consecutive quarter of losses, the magnitude has generally narrowed over the past few quarters. Bulk rates have steadily improved throughout 2013 amid slowing bulk carrier supply growth, which eased the downward pressure on rates. Meanwhile, the tanker division surprisingly fell back into the red, posting an RM3m operating loss in 3Q13. But the loss should be temporary as all three vessels were sent for dry-docking during the quarter, reducing earning days and raising docking cost. Losses from both its core divisions were more than compensated by profits from its offshore associate POSH, which again contributed a laudable RM14.7m to the company.
What to expect for 2014
Dry bulk rates will likely improve in 2014 amid less intense oversupply concerns, leading to narrowing core losses for the ship operator. Bulk TCE rates have already improved remarkably this year, with handysize and supramax rates rising by 56-90% since end-2012. Average rates for the two segments so far in 4Q13 are 48-75% higher than those seen in the same period last year, suggesting that Maybulk may close the year with substantially narrower losses for its bulk division. Also, the tanker division may return to profit once its three vessels leave the docks and return to sea.
Time to accumulate
Accumulate. Other than the prospect of rising profits, Maybulk is a savvy investor, buying ships near the bottom of a cycle and selling them for a profit when rates are much higher. The company has net cash of RM148m and is in a position to take advantage of low vessel prices.
Publish date: 10/12/13