Maybulk (MBC)’s 9M13 earnings disappointed  again on weak  rates. Its offshore associate,  PACC Offshore Services Holdings Pte Ltd  (POSH), once again  saved  the day, thanks to higher rates and vessel utilisation.Given its lower-than-expected  results,  we cut  our  FY13-15  earnings by 14%-44% respectively and trim our FV to MYR1.69 (from MYR1.70). With a 2% downside, we upgrade the stock to NEUTRAL (from Sell).

• POSH  saves  the  quarter  again.  MBC’s  9M13  core  net  profit  of MYR24.5m (YTD: +1.5%) made up 68% of our full-year forecast, coming in  below our  and consensus  estimates  as we  expect  4Q to be  a weaker quarter.  Had  it  not  been  for  the  MYR44.6m  contribution  from  its associates, notably  POSH, MBC  would  have incurred  losses.  Again, its offshore  associate  POSH  saved  the  day,  thanks  to  higher  rates  and better vessel utilisation despite difficult times in the shipping line.
• Weak  operating  environment.  The  macro  landscape  remained challenging, with the time charter equivalent rates  for its dry bulk vessels falling 11.3% YTD, while that of its tanker vessels picked up 17.2% YTD. To  add  to  its  woes,  MBC  saw  rising  costs  due  to  higher  drydocking activities, as it drydocked four vessels so far this year vs  only  one last year.  Going into next year, we expect the supply-demand imbalance  to ease  slightly,  with  a  full  recovery  likely  to  occur  only  in  2015.  Vessel supply  is  expected  to  rise  6%  in  2014,  potentially  outpacing  the  5% demand growth.  
• Earnings  downgrade.  As  we  had  assumed  higher  shipping  rates  for both  dry  bulk  and  tanker  earlier,  we  are  paring  them  down  to  the cumulative average for the year. However, we expect rates for FY14 and FY15  to improve by 35% and 25% respectively. Meanwhile, we trim our earnings  by  14%/40%/44%  for  FY13/14/15  respectively,  as  we  expect the shipping division to remain in the red next year, albeit narrowing.
• Upgrade to NEUTRAL.  Premised on  an unchanged P/B of 0.9x  (in line with the peer average),  we  tweak  our FV  marginally lower  to MYR1.69 (from  MYR1.70). With  a  2%  downside,  we  lift  our  recommendation  on MBC  to  NEUTRAL  (from  Sell).  Furthermore,  there  has  been  a  lack  of visibility  and  news  flow  on  POSH’s  IPO,  which  we  believe  has  been largely priced in.  

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Company Profile
Malaysian Bulk Carriers is Malaysia’s largest dry bulk player. It also operates chemical tankers and owns an associate stake  in Kuok Group’s offshore support vessel, PACC Offshore Services (POSH).

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Source: RHB