While it is suffering from the soft freight rate, Maybulk is also facing uncertainty over the renewal of its contract of affreightment (COA) with Tenaga Nasional Bhd.
CIMB Research said Maybulk’s earnings would come under pressure this year from the expiry of its “lucrative” Tenaga contract in mid-2011, noting that the COA was fixed at very high rates of US$60,000-US$90,000 (RM182,400-RM273,600) per day in June 2008, compared with to the group’s US$25,993 daily average in 2010.
“Assuming a downward repricing of the COA to US$16,000 per day from July onwards, we forecast a 20% decline in the 2011 average rate,” it said in a report yesterday.
CIMB Research also said medium-range tanker rates were hovering at multi-year lows due to excessive “newbuilding deliveries.” However, it noted the rates should bottom out this year and rise in 2H11, aided by lower supply growth and Japanese demand for low-sulphur fuel oil to replace nuclear fuel for electricity generation.
On Maybulk’s high exposure to the spot market, the research house noted that Maybulk had covered 40% of its bulk earnings days for 2011, meaning that the weak spot market could weigh down average bulk earnings this year.
However, some quarters believe the COA is just part of Maybulk’s business. And its equity stake in PACC Offshore Services Holdings Pte Ltd (POSH) could be catalyst for growth.
An industry player opined that Maybulk’s earnings should not be hinged primarily on the COA but be looked at “holistically” with the potential upside this year from the group’s 22%-owned associate POSH which provides supportive vessel services to the oil and gas (O&G) sector.
“The O&G sector is still a growth area and could help mitigate earnings volatility in the bulk shipping business,” he said, expressing optimism that the COA by Tenaga would soon be renewed but with a revision in rates.
For 4Q ended Dec 31, Maybulk saw its net profit fall 23% to RM67.7 million from RM88.45 million in the previous corresponding quarter. Revenue, however, rose 3% to RM84.73 million from RM82.61 million.
For FY10, net profit slipped 2% to RM238.37 million from RM243.8 million in FY09 due to weak tanker earnings and lower contribution from POSH, which declined by 72% to RM18.2 million from RM63.9 million previously due to reduced activities in the O&G sector and oversupply of vessels in the service sector.
On its prospects, Maybulk said in the result announcement that with China’s increasing need for iron ore, coal and grains, the group expects to see growing global demand for major commodity classes over the next few years.
In a briefing last month, Maybulk’s CEO Kuok Khoo Kuan told the media the company was expecting POSH to fare better in FY11.
Kuok said he expected things to pick up in the O&G sector this year.
The BDI, a key measurement of charter rates for large vessels, had peaked at 11,793 points in May 2008. It plunged to a low of 663 points in December in the same year due to the global financial crisis. The index averaged 2,758 points in 2010, an increase of 5% from the year before plunging to close at 1,437 points.
Nonetheless, the BDI resumed its downward trend this year. It is trending at around 1,450-level, about 50% lower than the average 2,758 points in 2010 and a high of over 10,000 points in 2008.
Amidst the tough environment, Maybulk’s share price has declined almost by 10% year-to-date but the stock is still trading above its net assets per share of RM1.68 in 4Q.
The counter has been hovering between RM2.50 and RM2.66 this month. It dropped two sen to RM2.53 yesterday. - Written by Yong Min Wei of theedgemalaysia.com
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