MBC’s  1QFY13  results  disappointed  again,  with  associate  POSH Offshore the sole earnings contributor as its dry bulk business remains in  losses  while  its  tanker  segment  posting  only  marginal  profits.  As such we  trim  our FY13  earnings  estimates  but  upgrade  our  FY14-FY15 numbers  on  the  back  of  its  fleet  renewal  program.  Downgrade  to NEUTRAL with our FV reduced to MYR1.66, premised at 0.9x FY13 P/B. 

-  Earnings  fell  short,  again.  Malaysian Bulk (MBC)’s  1QFY13  core  net profit  of  MYR4.6m  (y-o-y:  -74%)  was  below  our  and  consensus estimates.  The  earnings  were  solely  attributed  to  associate  POSH Offshore’s MYR13.4m earnings. Its dry bulk business remained in losses while  the  tanker  unit  barely  made  pre-tax  profits,  albeit  improved  y-o-y. The  disappointment  were  largely  due  to  weak  dry  bulk  time  charter equivalent (TCE) rates, which had plunged 24% y-o-y, coupled with the 17% y-o-y decline in hire days. MBC’s 1QFY13 revenue only accounted for 14% of our full year forecast. It was a seasonally weaker q-o-q due to the dry docking of two vessels and Chinese New Year.

- Forecast  revises.  In  line  with  the  Group’s fleet renewal  program,  two new-building bulk carriers will be delivered this year and five more in the next three years. We trim our FY13 earnings forecast to MYR36m (from MYR51m) on the back of lower revenue and TCE rates. However, given its recent aggressive fleet orders, we raise our FY14 and FY15 revenue estimates  on  expectation  of  higher  hire  days.  On  that,  coupled  with  the lower expenses of its upcoming new fleet, we lift our earnings forecasts for FY14-FY15 to MYR76m and MYR114m, and MYR76m, respectively.

- Downgrade  to  NEUTRAL.  Given  the  disappointing  earnings  and  grim outlook, we reduce our FV to MYR1.66, pegged to a lower FY13 P/B of 0.9x (from 1x).  A downside to its share price could be muted  given that the  upcoming  POSH  listing,  as  confirmed  by  Management,  could cushion  a  valuation  drop.  However,  we  think  investors  should  still  keep an eye on MBC’s core dry bulk business for an earnings recovery, which has yet to surprise on the upside. Attaching a value of 15x P/E on POSH Offshore, at MBC’s current market cap, would imply that the dry bulk and tanker shipping business is valued at 30x FY14 P/E, which is still steep.

Source: RHB