INVESTMENT HIGHLIGHTS

• Maybulk has yet to breakeven in the first quarter

• The dry bulk segment continues to face soft charter rates

• Major reversal in POSH unlikely in the near-term

• Maintain NEUTRAL with TP of RM0.73

Yet to breakeven in the first quarter. Maybulk reported a first quarter net loss of -RM33m (-29%yoy) which is within expectation as it was unable to capitalise on a steep rise in the Baltic Dry Index (BDI) which hit 1,338 in March. We expect better results in the remaining quarters due to rally in the BDI. The rally in the BDI was mainly driven by VLCC category vessels, while Maybulk operates a fleet of Panamax, Supramax and Handysize vessels. On the other hand, Maybulk’s 21% associate PACC Offshore (POSH) recorded a net loss of -SG$18m in 1QFY17 from a profit of SG$4m in 1QFY16, as charter and utilisation rates remain under pressure.

Dry bulk segment continues to struggle. 1QFY17 revenue for the segment improved to RM39m (+126%yoy) due to higher charter rates which averaged at US$6.4k/day in 1QFY17. However, this was insufficient to offset higher operating expenses, resulting in a loss before tax of RM13m. We note that the dry bulk industry has stabilised from the doldrums of 1QFY16, where the BDI fell to a 30-year low and Maybulk recorded average charter rates of only US$4.1k/day. We believe that the outlook for the segment remains challenging with newbuilding deliveries exerting pressure on charter rates.

There was little improvement at POSH as the oil & gas unit continued to face soft charter rates and sub-optimal fleet utilisation. POSH is in the midst of further trimming its operating costs to weather the current downturn and an extension to output cuts by OPEC and nonOPEC countries could lend some support. However, we do not expect a major reversal in POSH’s fortunes in the near-term as the market continues to adjust at a gradual pace.

Maintain NEUTRAL with TP of RM0.73 based on price-to-book (PB) ratio of 1.0x. Maybulk has carried out major impairments and writedowns to its vessels. Hence, we believe that the current carrying value of the company’s assets is reflective of current market conditions.

Source: MIDF Research - 16 May 2017