News  Yesterday, Malaysian Bulk Carriers (MAYBULK) submitted its audited FY13 financial statements to Bursa Malaysia with a negative deviation of 11.5% from the unaudited profit after tax and minority interest.

 According to the announcement, a joint venture of its associate, POSH, had made an allowance with regards to the recoverability of a certain trade debt which has caused the results from this associate (at PBT level) to be RM5.8m lower.

Comments  This came as a surprise to us being the first earnings deviation from unaudited results but we take comfort that this was caused by an associate rather than its subsidiaries.

 We are slightly negative on this as it raises uncertainty with regards to whether the earnings of POSH would be affected again in the future due to more write-downs of trade debts.

 However, we treat this as a one-off event judging by POSH’s track record. We believe with the still bullish Offshore Support Vessel (OSV) market expected in 2014, further significant write-down on trade debts will be unlikely.

 On POSH’s pending IPO listing on SGX, we believe that this earnings deviation will be just a mild dent to the positive sentiment of investors as we opine that it will still be able to obtain favourable IPO pricing given that: (i) 12 vessels to be delivered in 2014 which will be the key driver for POSH’s FY15 earnings and (ii) positive overall market for OSV operators as charter rates are expected to remain strong in 2014.

Outlook  Dry bulk segment, of which MAYBULK has the highest exposure, is expected to fare better in 2014 given the: (i) narrowing demand and supply gap of dry bulk vessels globally as Clarkson expects trade growth and vessel supply to be equal for the first time in four years and (ii) robust iron ore demand for stockpiling from emerging markets, especially China.

 We expect slightly better performances for its tanker segment in FY14, although the management is not

looking to expand their fleet in this segment, but we see a higher tendency of this segment to improve rather than worsen due to recovery in the global economy and possibly better charter rates for tankers.

Forecast  As we had imputed flattish earnings contribution from POSH over the next few years which is conservative given its planned expansion, we decide to maintain our forecasts for now pending the prospectus launch with a further upgrade in earnings more likely the case.

Rating  Maintain OUTPERFORM

Valuation  Our PBV-driven target price is maintained at RM2.53 based on 1.3x FY14 BVPS.

Risks to Our Call Weaker-than-expected charter rates.

 Escalation of bunker cost.

Source: Kenanga