TP: RM 1.54
Last Traded: RM 1.72
Sixth Straight Quarterly Losses at EBIT Level
_ Maybulk’s 9M13 core net profit came in below our expectations at 40% our full-year forecasts and 53% consensus estimates. This was mainly due to lower-than-expected time charter equivalent (TCE) rates. Also, the operating expenses were unexpectedly high due to higher docking expenses.
_ 9M13 core profit increased 5.2% yoy underpinned by higher contribution from POSH by 96%. Excluding that, Maybulk’s own operations continued struggling to turnaround at the EBIT level for the past 6 consecutive quarters. For 9M13, operating losses expanded by more than 4.7x yoy to RM22mn. The dismal performance can be attributed to slow recovery in TCE and higher docking expenses.
_ The average TCE rate for Maybulk’s bulk carriers was at USD8,968/day for 9M13, down 11.3% from USD10,115/day recorded in the same period last year. In term of quarterly performance, the average TCE rate recovered from the low of USD7,705 in 4Q12 to USD9,434 in 3Q13 (see Chart 2).
_ We cut our FY13-15 earnings by 27-53% after adjusting our TCE rates lower. We now project the company to turnaround only in 2015 for its own dry bulk operation. In our assumptions, we project the blended TCE rate to be at USD10,291/day in 2014 and USD10,765/day in 2015.
_ According to RS Platou, 12-months TCE rates for Supramax and Handysize have been recovering from lows of USD8,500/day and USD6,750/day respectively in Jan-13. October’s TCE rates for Supramax and Handysize increased further by 9.6% (to USD11,000/day) and 5.5% (to USD8,300/day) respectively from the average rates USD10,000/day and UDS7,867/day in Q3. Given the robust recovery, we believe the time charter rates have bottomed out.
_ However, we think the pace of recovery to be moderate in 2014 and this may not be sufficient to cover the operating costs. Essentially, we believe it will take some time for the market to absorb the oversupply of dry bulk carriers. Based on RS Platou’s findings, there are influx of new Supramax and Handysize with additional 33.5mn dwt coming into the market over the next 2-3 years. This is about 14% of current capacity.
_ POSH is expected to deliver robust earnings in FY14-15 with the increase in oil & gas activities. The impending listing of POSH on Singapore Stock Exchange may strengthen the company’s financial position further to support future earnings growth. However, in our analysis, the 21%-owned POSH is as good as an investment as Maybulk does not have significant influence over POSH.
_ Given the earnings downgrade, we cut our target price to RM1.54/share (from RM1.72/share) based on unchanged FY14 price-to-book multiple of 0.9x, in line with its regional peers’ average. Generally, we believe the impending listing of POSH has already been priced in. As such, future rerating catalyst is limited. Maintain Sell.