Period  3Q14

Actual vs. Expectations In 3Q14, a core net loss of RM3.0m was recorded, bringing its cumulative net profit to RM17.8. This is below both our and consensus forecasts, accounting for 24.4% and 37.9% of estimates, respectively, due to higher-than-expected expenses.

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

Key Result Highlights  In 3Q14, core net loss of RM3.0m was reported against a profit of RM8.5m in 3Q13 underpinned by: (i) significantly higher voyage expenses (+34.5%) on initial expenses on new deliveries, (ii) higher operating loss of product tanker segment on increased costs and docking of vessels, and (iii) lower associate contribution due to idling of vessels owned by its Mexican JV.

 On a QoQ basis, core losses widened from RM2.3m to RM3.0m in 3Q14 as weaker dry bulk market caused fleet charter rates achieved in the dry bulk segment to drop by 23.0% to USD7,474/day in 3Q14 from USD10,042/day in 2Q14 being made worse by higher expenses.

 Cumulative 9M14 net profit plunged 42.0% YoY after excluding RM16.5m one-off disposal gain predominantly due to higher operating expenses (+18.6%) and administrative expenses (+11.7% YoY) while the average Time-Charter-Equivalent rate partially offset the negative impact with 9.4% increase in rate YoY.

Outlook  Seaborne Chinese iron ore imports are projected to rise 12.0% YoY to a total of 894.2m tonnes in 2014 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 moving forward.

 Despite POSH’s headwinds in its Mexican JV due to non-payment by client, we believe the worst is over for the company and currently the group is in full control of its Mexican OSVs to be chartered out to other clients.

Change to Forecasts We are cutting our earnings forecast by 77.5% and 38.2% for FY14 and FY15, respectively, by (i) tweaking our dry bulk charter rate assumption from USD10,271.5/day to USD9,100/day, (ii) increasing operating cost/vessel assumption from RM13.0m to RM14.1m for both FY14 and FY15, and (iii) lowering margin assumption for associate (from to 25.0% to 20.0%) for FY14.

Rating Maintain OUTPERFORM

Valuation  Our TP is reduced marginally to RM2.50 from RM2.53 previously 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