Period  1Q14

Actual vs. Expectations 1Q14 results came in above expectations with net profit of RM23.0m, which made up 39.1% and 39.3% of our full-year forecast and the consensus estimates. Variance from our forecast is due to higher-than-expected profit margins from POSH.

Dividends  As expected, no dividends were declared in the quarter.

Key Result Highlights    1Q14 core net profit grew 17.0% QoQ to RM23.0m, which was underpinned by: (i) turnaround at operating level of RM0.2m from RM2.3m operating loss due to better rates and (ii) stronger earnings from its associate, POSH. The reason for low effective tax rates of 1.2% in 1Q14 was due to tax credits from losses of the dry bulk division.

 On a YoY comparison, 1Q14, core net profit surged 155.3% from RM9.0m in 1Q13, which was mainly driven by: (i) improvement in dry bulk charter rates which leapt 29.5% YoY to USD10,621/day from USD8,203/day in 1Q13; and, (ii) higher earnings from POSH due to better margins in OSV segment.

Outlook  Seaborne Chinese iron ore imports are projected to rise 12.0% YoY to a total of 894.2m tonnes mainly driven by strong expansion of Australian iron ore production capacity which caused a 20.0% plunge in iron ore prices this year. This bodes well for demand of dry bulk vessels owned by MAYBULK.

 As earnings from JCE suffered a dip in FY13 due to higher dry docking days for major maintenance for some of MAYBULK’s vessels, earnings from JCE are expected to be better in 2014 as no major ship maintenance is expected.

 POSH is expected to continue being the main contributor to MAYBULK this year given the positive OSV outlook.

Change to Forecasts We have revised our core earnings forecast upwards by 23.8% and 25.8% for FY14 and FY15 respectively by increasing our margin assumption for POSH to 25.0% from 20.0% previously for both years due to stronger rates expected for the OSV segment and factoring in the 10.0% fleet expansion by POSH in 2015.

 Our dry bulk charter rate assumptions are maintained.

Rating Maintain OUTPERFORM

Valuation  Our TP is maintained at RM2.53 pegged to 1.3x PBV multiple which is the 4-year historical average.

Risks to our Call (i) Unsustainable recovery in dry bulk rates (ii) Drop in POSH earnings contribution.

Source: Kenanga