KUCHING: Despite Malaysian Bulk Carriers Bhd (Maybulk) having recorded a disappointing first half (1H), some analysts expect to see a stronger 2H for the Baltic Dry Index (BDI) on the back of sturdier demand for iron ore shipments, which would bode well for freight rates.
In a statement to Bursa Malaysia, Maybulk pointed out that the Group’s profit had increased by 88 per cent to RM42.67 million in the 1H of this year, from RM22.74 million reported in the same period last year mainly due to a gain on disposal of a vessel and improved charter rates.
According to analyst Ahmad Maghfur Usman from RHB Research Institute Sdn Bhd (RHB Research), with the first half of 2014 (1H14) core net profit at only RM20.1 million (their initial full-year forecast at RM67 million), Maybulk’s numbers came in below their and consensus expectations.
“The disappointments were due to the weak charter rate environment in the second quarter of 2014 (2Q14), which failed to outperform the benchmark BDI on a year on year (y-o-y) and year to date (YTD) basis,” Ahmad explained.
The analyst further noted that during the quarter, Maybulk’s time charter rate dropped by 11.6 per cent quarter on quarter (q-o-q) but it only posted a 2.1 per cent y-o-y gain versus the BDI’s daily average of 10.9 per cent.
“This lower-than-expected increase was also eroded by higher rates from its chartered-in vessels. Furthermore, earnings on the tanker side were lower on higher dry docking days,” he added.
As such, RHB Research has raised the increase in daily rates of Maybulk’s charter-in vessels (a cost component) for financial year 2014 (FY14)/ FY15 to 20 per cent/15 per cent from 15 per cent/10 per cent respectively, with a five per cent increase in FY16 left unchanged.
“Furthermore, we have reduced the hiring days for its tanker division by 10 per cent in FY14, on higher-than-expected dry docking days. All in, this consequently lowers our FY14/FY15/FY16 earnings forecasts by 15 per cent/8 per cent/8 per cent respectively,” the analyst affirmed.
As for the research arm of TA Securities Holdings Bhd (TA Research), it trimmed its FY14-16 earnings by 21-55 per cent after reducing associate PACC Offshore Services Holdings’ (POSH) contribution by 19-20 per cent.
It continues to expect Maybulk to record operating losses in FY14 and FY15 and added that the weak earnings prospect is expected to be further aggravated by the downgrade of POSH’s earnings contribution.
As such, TA Research cut its target price to RM1.72 per share from RM1.88 per share previously, based on revised 0.9-fold current year 2015 (CY15) book value and maintained its ‘sell’ recommendation on Maybulk.
In contrast, despite a disappointing 1H14, RHB Research expects to see a stronger second half for the BDI on the back of sturdier demand for iron ore shipments, which would bode well for freight rates. It noted that the BDI is now at 1,088pts versus its 723pts low.
Following the research house’s lowered earnings estimates, it reduced its fair value to RM2.00 per share versus RM2.17 per share, which gives an implied FY15 price-earnings (P/E) of 15.4-fold, that is, slightly lower than the 16.5-fold average of its peers.