MAYBULK : Maintain BUY at RM2.87 with higher FV of RM3.70

Maybulk outperforms in 3QFY10

Malaysian Bulk Carriers Bhd
(Nov 24, RM2.91)
Maintain buy at RM2.87 with higher fair value of RM3.70: We reiterate our “buy” rating on Malaysian Bulk Carriers Bhd (Maybulk), with a higher fair value of RM3.70 following an upward revision to our earnings projection. Our valuation continues to peg Maybulk at 14 times FY11F earnings, on par with peers’ average.

Maybulk reported a core net profit of RM75 million for its 3QFY10, which brought 9MFY10 earnings to RM170 million. This came in well ahead of our expectation as well as consensus.

While rates were lower (down 8% to 20% quarter-on-quarter), the positive surprise was that margins expanded significantly — particularly considering that the weaker US dollar is a net negative given that revenue is recognised in the greenback. This was partly driven by better fleet utilisation and lower operating cost (-5% q-o-q).

Utilisation rate increased tremendously, driven by more hire days (+34% q-o-q). Given the high operating leverage nature of shipping operators, this translated into much better gross margins (+8.9 percentage points q-o-q).

Additionally, fuel cost was 4% lower q-o-q, reflected in the average bunker cost of US$462 (RM1,451) per tonne in 2QFY10 to US$444 per tonne in 3QFY10.

We have revised upwards our projections by 20% to 25% over FY10F/12F to reflect more hire days (+10%) and lower than expected bunker fuel cost. Year-to-date, bunker fuel averaged at US$461 per tonne, 4% lower than our earlier estimate of US$480 per tonne. Implied core net margin for our FY10 projection rises from 46% to 55%.

According to Clarksons Research Services, the global dry bulk fleet growth rate will peak in 2010 at +16% to 534 million dead-weight tonnes (dwt), and should start to see a slowdown in 2011, with just a 12% growth. This should provide some positives for the sector as we head into FY11F.

Valuation-wise, Maybulk is trading at a 20% discount to peers’ average of 14 times FY11F earnings. We expect catalysts to materialise in the form of: (i) Maybulk’s capacity buildup via acquisitions; (ii) improving industry core fundamentals from gradually slowing global fleet growth; and (iii) seasonally stronger 4Q as the winter season drives coal demand. — AmResearch, Nov 24