LAST year, the Baltic Dry Index — the barometer of the cost of carriage of dry bulk goods such as iron ore, grain and coal across sea routes — breached the 1,200-point mark, but currently, it seems to have stabilised at the 1,000-point level, up from a record low of 290 points last February.
Also last year, in November, the West Texas Intermediate breached the US$50 per barrel mark, up from US$26.21 per barrel last February.
These gains should augur well for Malaysian Bulk Carriers Bhd (Maybulk), a company with interests in dry bulk vessels and has an associate 21% stake in Singapore-listed PACC Offshore Services Holdings Ltd (POSH) — one of the five largest offshore support vessel operators in the world.
“It does appear that the worst is over, but the uncertainty remains. There is concern about the US ... where the president-elect will impose protectionist measures, as said during his election campaign. We will have to wait and see,” Maybulk CEO Kuok Khoon Kuan tells The Edge in a brief telephone conversation.
“We have actually seen improvements globally ... there are fewer orders for dry bulk vessels.”
In the past two financial years, Maybulk, which is the shipping arm of billionaire tycoon Robert Kuok Hock Nien, has been bleeding losses. While its FY2016 seems likely to end in the red again, there is hope for a profitable FY2017.
An analyst with MIDF Research who covers Maybulk tells The Edge over the phone, “Things seem to be picking up from the doldrums of 2016. Shipping rates across ship sizes are not encouraging yet, but there is an opportunity to break even. Definitely the worst was in February last year. The capacity of vessels has come down and scrapping has gone up.”
He has a target price of RM1.04 for Maybulk and maintains his “buy” call on the stock.
In a note last August, the analyst says, “Our target price of RM1.04 is based on a five-year average price-to-book (PB) ratio of 0.88 times. We believe that the worst is over for the dry bulk shipping sector and that valuations for Maybulk should revert to its five-year mean. In addition, Maybulk has taken steps to impair various items on its balance sheet, making its PB valuation more reflective of current market prices and conditions. Meanwhile, dry bulk shipping overcapacity issues are set to ease with a forecast addition net capacity of 1.3%, versus a higher 2.4% growth in demand. This bodes well for Maybulk.”
During the phone conversation, he explains his “buy” call: “Maybulk’s third-quarter results were bad, but it is trading far below its book value.”
In its nine months ended September 2016, Maybulk suffered a net loss of RM95.22 million on the back of RM161.35 million in revenue. In the corresponding nine-month period in 2015, it incurred a net loss of RM58.07 million on revenue of RM176.75 million.
Maybulk’s net asset per share as at end-September last year was RM1.02. It closed at 73.5 sen last Thursday, giving the company a market capitalisation of RM735 million.
MIDF Research forecasts that Maybulk will incur a net loss of RM74.3 million on revenue of RM218.6 million in FY2016. However, it expects the company’s fortunes to turn around in FY2017, when it registers a net profit of RM19.6 million on RM249.2 million in revenue.
Maybulk has also been trimming its fleet, selling some of its older ships and placing orders for as many as three new ships. While not entirely clear, Maybulk is understood to have disposed of at least three ships last year — product tanker Alam Budi for US$13 million, post-Panamax vessel Alam Pesona for US$6.9 million and Supramax tanker Alam Murni for US$4.65 million. Towards the end of the year, news reports had it that there was a plan to hive off Handysize vessel Alam Sakti for US$6.5 million to US$7 million, but there is no indication if it has been sold as yet.
The company has also been ordering new ships to replace ageing ones. In 2014, it took delivery of three new buildings while two others could have been delivered last year. There had been three more under construction, scheduled for delivery in 2016-18, when the market is supposed to recover.
One of the vessels delivered last year was awarded a 15-year, RM563 million coal transport contract, starting September 2016, by utility giant Tenaga Nasional Bhd.
Similarly, POSH has secured a host of contracts, including the Terasea transport and installation for Shell Prelude, a US$85 million contract to supply four vessels and an anchor handling tug and a US$167.5 million contract from Saudi Arabian and Qatari oil majors. It also won contracts from Technip Oceania.
These contracts, coupled with a more favourable environment, could see Maybulk turning the corner next year.
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