• FY16 core net loss larger than expected

• Dry bulk segment improved in 2HFY16

• Deflated charter rates and lower fleet utilisation at POSH

• Downgrade to HOLD with TP of RM0.73 (from: RM1.04)

FY16 core net loss larger than expected. Stripping off several lumpy impairment charges, Maybulk’s core net loss came in at -RM20m in 4QFY16. For the second time in as many years, the company impaired the value of its dry bulk vessels (-RM50.3m), wrote down the value of its associate (-RM39.1m) and recorded a share of impairment charges by its Singapore listed associate POSH (-RM287m). We note that the company had disclosed its intention to impair these assets in its 3QFY16 results commentary. For the full year, core net loss stood at -RM106m which was larger than our forecast mainly due to losses at POSH.

Dry bulk segment improved in 2HFY16. Fourth quarter revenue for the segment almost doubled from a year earlier and was close to breakeven with an adjusted loss before tax of -RM6.4m. In addition, adjusted PBT for the segment improved significantly in 2HFY16 at RM7.4m compared to a loss before tax of -RM99m in 1HFY16. The improvement was due to better average charter rates of US$6.2k/day in the second half compared to US$4.5k.day in the first half. Looking ahead, while both demand (iron ore & coal consumption) and supply side (increased scrapping activity) dynamics seem to have improved slightly, we believe that the industry is lacking impetus that would lend support to a significant rise in charter rates.

Deflated charter rates and lower fleet utilisation at POSH led to net loss excluding impairments of US$35m in 4QFY16. For the full year, POSH recorded a net loss excluding impairments of US$61m compared to a profit of US$17.4m in FY15. We expect losses to narrow in FY17 as POSH commences its Middle East charters where it has commenced delivery of 2 vessels and will progressively deploy another ten OSV vessels which should reduce the number of idle vessels.

Downgrade to HOLD with TP of RM0.73 (from: RM1.04) based on price-to-book (PB) ratio of 1.0x which is slightly above its 5-year mean PB ratio. The main reason for the reduction in our TP is due to write-offs and impairments of the company’s assets of which carrying amount was found to exceed fair value or value in use. Hence, with impairments and write downs carried out, the current carrying value of the company’s assets would be reflective of current market conditions.

Source: MIDF Research - 24 Feb 2017