Maybulk in choppy waters

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LAST WEEK, Malaysian Bulk Carriers Bhd (Maybulk) — the shipping arm of billionaire tycoon Robert Kuok Hock Nien — reported its first quarterly loss since its flotation exercise in December 2003. Whether there is light at the end of the tunnel for the company is anyone’s guess.

To put things in perspective, the company has struggled at the operating profit level since the second quarter of financial year 2012.

In a brief phone conversation with The Edge, Maybulk CEO Kuok Khoon Kuan says, “Our plans are basically to do the best we can in the challenging market.

“It’s about trying to read the markets as best as we can … unfortunately, it’s the way things are these days” is all he offers.

His comments may not be comforting, but they paint an accurate picture of the slump the shipping industry is in.

To recap, Maybulk suffered a net loss of RM2.97 million from RM62.98 million in revenue for its third quarter ended Sept 30. For the three months in review, the company suffered a loss per share of 0.3 sen.

In the corresponding period a year ago, Maybulk registered a net profit of RM8.54 million on the back of RM62.82 million in revenue, translating into earnings per share of 0.85 sen.

The stock, which is down more than 37% from April this year, hit a six-week low after the financials were announced. It closed at RM1.36 last Thursday — close to 25% below its net asset per share.

The analyst fraternity did not spare Maybulk as well.

TA Securities ceased coverage on Maybulk, maintaining its “sell” call. In its final report, it says, “On a cumulative basis, 9M2014 core earnings slipped into losses of RM8.6 million. This was a sharp drop from a core profit of RM24.7 million in the same period last year.

“The balance sheet quality dropped with the increase in net debt to RM276 million in 3Q2014 from a net cash of RM68 million in FY2013.”

Among others, what weighed Maybulk down was 21.23% subsidiary, PACC Offshore Services Holdings Ltd (POSH), which has a fleet of some 120 offshore support vessels. POSH was listed in Singapore in April this year.

Since 2011, POSH has had a joint venture with Mexican company Servicios Maritimos Gosh SAPI de CV (GOSH) and chartered some eight vessels to Oceanografia SA de CV.

Oceanografia, however, was said to have used fraudulent invoices from government-owned Petroleos Mexicanos (Pemex) to obtain funds, and has since been taken over by the Mexican government in February this year.

While POSH says it has nothing to do with the fraud, six vessels (out of eight) controlled by GOSH are still on charter to Pemex. What makes things worse is that two individuals who have interests in Oceanografia also hold substantial interests in GOSH.

POSH had also granted a loan to GOSH for the acquisition, modification and mobilisation of the six vessels of GOSH that had been chartered to Oceanografia. The outstanding loan amount stood at almost US$110 million (about RM368 million) in FY2013.

According to Maybulk’s 2013 annual report, POSH contributed significantly to the former’s bottom line — RM35.3 million in 2012 and RM48.6 million in 2013.

For the nine months to September 2014, POSH contributed RM43.536 million to Maybulk’s profit before tax, a 4% decline from the same period last year. For the period, the company reported PBT of RM40.04 million, a 28% increase from a year ago.

MIDF Research maintains a “buy” call on Maybulk with a lower target price of RM1.72 from RM2.02 previously, and reiterates Maybulk’s statement that accompanied its financials, that POSH had now “secured equity and operational control over all its Mexican operations and assets”, which would enable the ships to be redeployed.

While subsidiary POSH was grappling with issues in Mexico, Maybulk was also ravaged by weak charter rates, as indicated by the Baltic Dry Index (BDI).

The BDI tracks the cost of carriage of dry bulk goods such as iron ore, grain and coal across sea routes. In its notes that accompanied its financials, Maybulk says its fleet’s charter rates averaged US$7,747 per day in the third quarter, which is a 23% drop from the average of US$10,042 per day in 2Q2014.

“Depressed charter rates combined with initial expenses on new deliveries caused the group’s operating loss to increase by RM12.76 million quarter on quarter,” Maybulk says.

The company, as at May this year, had a fleet of 24 ships, 21 bulk carriers and three tankers.

The BDI last Thursday stood at 1,239 points, down some 47% from December last year, as an abundance of vessels forced down charter rates.

Nevertheless, according to Maybulk, dry bulk trade is projected to grow 4.2% in the full year of 2014, slightly lower than the fleet growth of 5.1%, net of scrapping and vessel delivery slippages.

Maybulk, in its notes that accompanied its financials, says the International Monetary Fund downgraded its world gross domestic product growth forecast to 3.3% for this year and 3.8% for next year.

“The cumulative build-up of tonnage continues to place pressure on the market in the short term. However, on a positive note, new building ordering activity has slowed from late 2013. Freight rates will continue to enjoy the occasional seasonal hikes, although such improvements are unlikely to be sustainable. We expect dry bulk segments to remain soft in the coming months,” Maybulk says, painting a bleak picture.

Despite the pessimism, Maybulk chairman Datuk Captain Ahmad Sufian tells The Edge, “Times are bad for shipping now, due to many reasons. But shipping is a long-term business and I am sure that the good days we have seen in the past will come back.”

This article first appeared in The Edge Malaysia Weekly, on December 1 - 7, 2014.