Thursday, July 7, 2016

Maybulk to stay in the red, says Kenanga

In Dry Bulk Market,International Shipping News 07/07/2016
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Malaysian Bulk Carriers Bhd (Maybulk) is expected to remain in the red this financial year and next as the outlook for dry bulk and the Baltic Dry Index (BDI) appears unexciting due to the oversupply of vessels and poor demand, affecting charter rates.
Maybulk is the country’s largest dry bulk ship owner controlled by tycoon Robert Kuok.
Kenanga Research expects Maybulk’s losses to be between RM53.8mil and RM24.8mil in financial year 2016 (FY16) to FY17, as the company would not be able to cover operating costs, while contributions from associate PACC Offshore Services Holdings Pte Ltd (POSH) will be insufficient to churn out net profits.
“Although the BDI has picked up from a low of 290 in February 2016 to 660 currently, we believe that there may still be some downward pressure on the BDI and dry bulk shipping charter rates.
“The industry is expecting large orderbooks to enter the market within FY16 to FY17, further adding to the vessel oversupply issue,” said Kenanga Research.
The industry is expecting an orderbook of about 45 million deadweight tonnage (dwt) in FY16 and 20 million dwt in FY17, which is even higher than deliveries seen in FY14-FY15 of 30 million dwt to 32 million dwt.
Maybulk is in the process of selling off older assets of more than 10 years to lock in the value at current rates, which would help manage the group’s borrowings, which is at 0.49 times currently, while the group is delaying the delivery of four new fleets to FY18-FY19 due to current slower market conditions.
The new fleets were initially expected to be delivered by FY16-FY17.
These fleets were pre-ordered in FY12-FY13 when prices were attractive with a view of replacing tonnage as they age as part of the fleet renewal programme.
Maybulk currently has 19 bulk carries and two tankers.
Besides that, the research house noted that Maybulk had no plans of paring down its 21% stake in POSH, as it may be a bright spot in the coming quarters as POSH’s profit in the first quarter of FY16 (Q1’16) of RM4mil helped narrow Maybulk’s losses.
POSH continues to have a diversified fleet specialising in offshore supply vessel and harbour services and is operating in the right markets such as Brazil and the Middle East.
Recent Q1’16 results ended March 31 saw widening losses of RM25mil year-on-year due to higher operating expenses, a higher finance cost for payment of new buildings and a weaker dry bulk segment on low charter rates.
However, losses narrowed from RM1.1bil in Q4’15, which had recorded losses in POSH and higher impairments and provisions. POSH recorded a loss of RM120.8mil in Q4’15 as compared to an RM4mil profit in Q1’16.
“Additionally, while management refused to comment on further impairments going forward, it did not discount the possibility that there may be additional impairments, suggesting that the worst may not be over yet,” said Kenanga Research.
The low dry bulk TCE (Time Charter) rates, which dropped more than 30% year-on-year to average US$6,407 per day in FY15, are insufficient to cover operating costs, and Kenanga Research expects rates to remain under pressure in FY16-FY17, while contributions from POSH may narrow losses but are insufficient to churn out net profits.
Maybulk saw operating profits back in FY11-FY12 when TCE rates averaged US$16,519 to US$9,530 per day, respectively.
“We believe investors should relook at the stock once the BDI sees a steady increase and above the 1,000 level, which hinges on stronger demand for dry bulk, driven by China and the overall global economy, as well as an end to the vessel oversupply issue, which is unlikely to happen by FY16-FY17,” said Kenanga Research.

Source: The Star