Period

1Q15

Actual vs. Expectations

Net loss of RM22.4m (from 1Q14 net profit of RM23.0m) was below expectations as compared to the RM29.7m and RM0.4m net losses forecasted by us and the consensus, respectively. The negative variation can be attributed to lower-than-expected charter rates in the dry bulk segment and the lower-than-expected performance from key earnings contributor, its Singapore-listed associate POSH (21.2% stake).

Dividends

None, as expected.

Key Results Highlights

YoY, the Group slumped into losses of RM22.7m from profit of RM23.0m. The negative performance was due to the sharp decline in dry bulk freight rates (-42.7%), which is in line with the collapse of Baltic Dry Index (BDI) which dipped 55.2%. As a result, the division recorded operating losses of RM13.8m in contrast to operating profit of RM3.0m in 1Q14. Besides, its associate - POSH - also underperformed with contribution of a mere RM160k vis-à-vis RM25.5m in 1Q14, which further explained the quantum of net losses.

QoQ, operating losses widened to RM23.9m from RM11.9m due to the lower charter rates (-25%) in the dry bulk segment. However, POSH managed to contribute positively to the earnings after recovering from a net loss of RM6.8m in 4Q15, which prevented the Group net losses of RM22.7m from further expanding.

Outlook

BDI continued the slump into 2Q15 with the average in 2Q15 representing a 6.7% decline from the low in 1Q15. We do not foresee near-term recovery in BDI considering the substantial drop in iron ore shipments, slack activity incoal transportation coupled with high tonnage capacity, on top of the slower global growth. Thus, we expect challenging and difficult times ahead for MAYBULK.

Outlook for subsidiary POSH, the key earnings contributor, is also expected to be bleak with the subdued oil prices limiting the demand on offshore oilfield development activities, thus affecting the rates and utilisation.

In view of the worse-than-expected results, absence of catalysts and the lack of investment interests, we have decided to drop MAYBULK from our core coverage. Nonetheless, we are looking to continue monitoring and updating any development if we see sufficient and meaningful inputs.

Change to Forecasts

N.A.

Rating

Our previous Rating was UNDERPERFORM

Valuation

Our previous Target Price of RM1.09 was based on0.54x PBV FY15E, which implied -1.5xSD over its 5- year mean PBV.

Risks

N.A.

Source: Kenanga Research - 28 May 2015