Malaysia Bulk Carriers Banking on a recovery in dry bulk shipping

Transcription

1 30 June 2016 Dry Bulk Shipping Update Malaysia Bulk Carriers Banking on a recovery in dry bulk shipping Maintain BUY Unchanged Target Price (TP): RM1.04 INVESTMENT HIGHLIGHTS BDI has improved to 640 since hitting lows of 290 China import of iron ore and coal volume rising Maybulk is disposing older vessels to improve liquidity Concerns on overcapacity in dry bulk tonnage could subside 21%-owned POSH has secured 5 contracts to date Maintain BUY with TP of RM1.04 Keeping an eye on the BDI. The Baltic Dry Index (BDI) which measures charter rates across dry bulk ship sizes and routes has rebounded from its low of 290 recorded on 10/2/2016 and remained at above 600 for the majority of 2QFY16 (last closing as of 29/6/16 was 640). Translated into 1-year time charter rates of US$4.7k/day, US$5.8k/day and US$6.4k/day for Handysize, Supramax and Panamax vessels, the rates are still below our estimated average fleet breakeven cost of ~US$7.5k/day for Maybulk. However, we believe losses could have bottomed for the dry bulk segment in 1QFY16 while associate PACC Offshore Services Ltd (POSH) could spring some positive surprises. In favour of a sustained over short-lived rally. A repeat of the minirally that took place in June-Aug 2015 where the BDI rose sharply from 589 to 1222 and fizzled out is unlikely to transpire. However, we are not disheartened as we believe that the prospect of a sustained recovery is more important for the company in the long-run. Year-to-date 2016 monthly iron ore import growth has doubled. China s average monthly iron ore import volume has grown at a pace +4%yoy at 82.5mil tonnes per month in 2016, double the growth rate registered in 2015 of +2%yoy. The growth in imports bodes well for dry bulk shippers. The positive growth comes amid concerns of China s economy losing steam coupled with capacity cuts in steel mills. Iron ore prices at the Port of Qingdao trading at US$54/metric tonne are also firmly above its lows of US$38/metric tonne registered in Dec Growth in coal imports positive despite shift to cleaner energy, at +1.4%yoy average monthly imports in 2016 compared to This is a welcome sight after a -30%yoy drop in average monthly import volume in 2015 compared to Similar to iron ore, a positive growth in the volume of coal imports in China augurs well for the dry bulk industry especially considering China s -0.13% decline in thermal energy generation. Meanwhile, thermal coal prices at China s Qinhuangdao Port currently trades at CNY394/metric tonne after reaching a low of CNY345/metric tonne in Nov 2015 indicative of rising demand. RETURN STATS Price (29 June 2016) Target Price Expected Share Price Return is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures RM0.85 RM % Expected Dividend Yield - Expected Total Return +22.4% STOCK INFO KLCI 1, Bursa / Bloomberg Board / Sector Syariah Compliant 5077 / MBC MK Main/Trading Services Yes Issued shares (mil) 1,000.0 Par Value (RM) 0.25 Market cap. (RM m) Price over NA wk price Range RM RM1.05 Beta (against KLCI) mth Avg Daily Vol 8.69m 3-mth Avg Daily Value Major Shareholders RM7.46m Kuok (Singapore) Ltd % Minister of Finance 18.39% PPB Group Bhd 14.00%

2 Older vessels disposed in an improving secondary market. Maybulk has disposed 3 vessels so far in 2016 with an average age of 13 years, namely Alam Budi Product Tanker (US$13m), Alam Pesona Post Panamax (US$6.9m) and Alam Murni Supramax (US$4.65m). While second hand vessel values are unlikely to revisit prior year highs, they have certainly come off their lows. For example, the price for 10-year old Panamax vessels bottomed at US$6.15m in Feb 2016 but has since rebounded to US$7.9m in June 2016, a swing of 28%. Divestments give Maybulk more breathing space. Through the divestments, Maybulk intends to reduce its net gearing ratio which currently stands at 0.49x and reduce the average age of its fleet with 4 newbuilds on order which positive for operating costs and bidding competitiveness. Also worth noting is that 1 of its new Panamax scheduled for delivery in 2016 has been contracted to a 15-year RM563m coal transport contract starting Sept 2016 with Tenaga Nasional at above market rates due to the long-term nature of the contract. No. Vessel name Category Age DWT Owned 1 Alan Padu Post Panamax 11 87,052 2 Alam Permai Post Panamax 11 87,052 3* Alam Pesona Post Panamax 11 87,052 4 Alan Pintar Post Panamax 11 87,052 5 Alam Manis Supramax 9 55,652 6 Alam Madu Supramax 2 58,045 7 Alam Molek Supramax 2 58,074 8 Alam Makmur Supramax 1 55,600 9 Alam Sakti Handysize 10 32,609 Sub-total 608,188 Jointly Owned 10 Alam Penting Post Panamax 11 87,052 11* Alam Murni Supramax 13 53, Atlantic Progress Handysize 5 32, Atlantic Dream Handysize 5 32,527 Sub-total 205,659 Long-term charter 14 Alam Mutiara Supramax 4 61, Alam Maju Supramax 4 58, Alam Sayang Supramax 3 61, Alam Seri Handysize 5 29, Alam Suria Handysize 4 29, Alam Setia Handysize 3 36, Alam Sinar Handysize 2 36,320 Sub-total 312,829 Total 1,126,676 Tankers 1* Alam Budi Product Tanker 15 47,065 2 Alam Bistari Product Tanker 15 47,065 3 Alam Bakti Product Tanker 13 47,999 Total 142,129 Source: Company, MIDF Research *Alam Budi disposed in Jan 2016, Alam Pesona disposed in April 2016 and Alam Murni in May

3 Concerns on overcapacity in dry bulk tonnage could subside as scrapping activity has picked up pace. Until May 2016, a total of 17.8m DWT of bulk carrier tonnage has been scrapped representing 60% of total tonnage scrapped for the entire 2015 of 30m DWT (source: Clarksons Platou). On the backdrop of total delivered tonnage over the similar period of 20.7m DWT, net capacity addition is only 2.9m DWT which is could be negligible growth year-onyear after factoring in further deferments in newbuilds due to the slow recovery in time charter rates. In addition, dry bulk capacity growth is expected to taper significantly in 2017 with estimated tonnage growth of +0.6%yoy. 21%-owned POSH has secured 5 contracts to date. SGX listed POSH has gained 24% year-to-date, riding on a recovery in crude oil prices and leveraging on its young fleet which are customized to fit the specifications required by their customers. In 1QFY16, the contribution from associate amounted to RM4m and we are expecting this to rise to a conservative RM5m per quarter for the remaining quarters in 2016 based on its secured orderbook which would cushion weakness from the dry bulk segment until time charter rates recover further. No. Date Segment Awarder Start date Duration Contract Sum 1 11/1/16 Posh Terasea transport & installation Shell Prelude FLNG 2016 N/A N/A 2 24/2/16 Supply 4 new utility vessels & 1 AHTS 3 31/3/16 POSH Xanadu semisub accommodation vessel 4 26/4/16 8 offshore supply vessels 5 24/6/16 Source: POSH, MIDF Research POSH Acadia semisub accommodation vessel Saudi Arabia & Qatar oil majors years with extension US$85m Petrobas year N/A Saudi Arabia & Qatar oil majors Technip Oceania Pty Ltd (FLNG) Dec years US$167.5m 2016 N/A N/A Reiterate BUY with TP of RM1.04. Our target price of RM1.04 is based on 5-year average price-to-book (PB) ratio of 0.88x. We believe that the worst could be over for the dry bulk shipping sector and that valuations for Maybulk should revert to its 5-year mean. In addition, Maybulk has taken steps to impair various items on its balance sheet making PB valuation more reflective of current market prices and conditions. Meanwhile, dry bulk shipping overcapacity issues are set to ease with forecasted net capacity addition of +1.3%, versus a higher +2.4% growth in demand. This bodes well for Maybulk, the sole dry bulk shipper under our coverage. 3

4 INVESTMENT STATISTICS FYE Dec FY13 FY14 FY15 FY16F FY17F Revenue (RM m) EBIT (RM m) (502.5) (25.0) 24.6 Pretax Profit (RM m) (1,038.3) (29.0) 20.6 Net Profit (RM' m) (1,197.4) (27.5) 19.6 Core Profit (RM m) (107.8) (27.5) 19.6 EPS (sen) (10.8) (2.8) 2.0 EPS growth (%) (23.8) (65.3) (717.4) PER (x) (7.0) (27.4) 38.6 Net Dividend (sen) Net Dividend Yield (%) Source: Company, MIDFR DAILY PRICE CHART Source: Bloomberg Tay Yow Ken, CFA

5 Figure 1: Baltic Dry Index (BDI) Figure 2: Monthly Average 1-year TC rate for Dry Bulk Carriers, (US$ 000/day) Source: Baltic Exchange, Ship Brokers Reports, MIDFR Figure 3: China Volume of Commodity Imports - Iron Ore & Concentrate (Million Tonnes, mt) Figure 4: Qingdao Port Iron Ore Price, US$/mt Source: Bloomberg, China Customs, MIDFR Figure 5: China Weekly Total Steel Inventory, (10,000 Tonnes) Figure 6: China Volume of Commodity Imports - Coal & Brown Coal (Million Tonnes, mt) Source: Bloomberg, China Customs, MIDFR 5

6 Figure 7: 10-year Panamax Vessel Price, USD m Figure 8: POSH share price, SGD Source: Bloomberg, VesselsValue, SGX, MIDFR Figure 9: Dry bulk tonnage delivery & orderbook Figure 10: PACC Offshore Services Holdings Ltd Share Price (SGD) Source: Howe Robinson Partners, Clarksons Platou, Company, MIDFR 6

7 is part of MIDF Amanah Investment Bank Berhad ( X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected to be <-15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 7