News  MAYBULK announced that they have accepted a 5-year term loan facility of RM320.0m offered by RHBBank Berhad.

 According to the announcement, the loan facility will be utilised to refinance a bridging loan maturing in early 2015, as well as for CAPEX and working capital requirements.

Comments  This is not a surprise to us as the company has the intention of renewing and expanding their dry bulk fleet to capture the potential recovery in the dry bulk shipping market.

 As of end 1Q14, the net cash balance of MAYBULK stands at RM27.6m and we opine that more cash is needed to fund the acquisition of dry bulk vessels, which cost c.USD30.0m each based on the latest price reported by Fearnley’s Research.

 The ability to secure the loan facility is a positive event as it gives MAYBULK more flexibility to acquire dry bulk vessels at low prices for expansion and fleet renewal given the current weak dry bulk charter market compared to its heydays before the 2008 financial crisis.

 Given the net cash balance sheet position at the moment, we believe that the drawdown of the loan facility will not impair the strength of MAYBULK’s balance sheet.

Outlook  Dry bulk segment, of which MAYBULK has the highest exposure to, 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 similar for the first time in 4 years and (ii) robust iron ore demand for stockpiling from emerging markets, especially China.

 1H14 is a weak half as expected for the dry bulk shipping market. Nevertheless, we are expecting a much stronger 2H for dry bulk shipping due to seasonality and MAYBULK is expected to benefit from this trend. On a YoY basis, we expect to see positive deviation of dry bulk charter rates due to stronger market fundamentals.

 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 improving rather than worsening due to recovery in the global economy and possibly better charter rates for tankers.

Forecast  We maintained our earnings forecast for now.

Rating Maintain OUTPERFORM

Valuation  Our PBV-derived 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