Maybulk: recovery beckon?

Results Update

For QE31/12/2013, Maybulk's net profit increased by 130% q-o-q or 15% y-o-y to RM19.7 million while revenue dropped by 8% q-o-q or 5% y-o-y to RM57.8 million.


The Group posted a quarterly operating loss of RM2.3 million in QE31/12/2013, an improvement of RM4.0 million compared to RM6.3 million loss in the immediate preceding quarter (QE30/9/2013). This was mainly due to increased hire days and reduced docking cost.

Other operating income increased RM13.0 million mainly due to year end mark to market gain on investment (RM9.5 million) and gain on disposal of a parcel of land. Whilst administrative expenses increased RM1.2 million due to higher software maintenance cost, finance costs remained stable.

The associate (POSH) reported another profitable quarter, contributing RM9.0 million to the Group’s bottom line.


Table: Maybulk's last 8 quarterly results


Chart 1: Maybulk's 31 quarterly results

Shipping Rate Outlook

As noted in July 2013 (here), Shipping rates had bottomed out and poised for recovery. From Chart 2 below, we can see a rally in late 2013 which sent DBI to a high of  USD2400 in late December last year. Since then, the rate has eased back substantially. From Chart 3, we can see that BDI has even broken below the medium-term uptrend line at USD1800. This means that shipping rates may not rally again anytime soon.


 Chart 2: BDI's monthly chart as at Feb 2014 (Source: Investmenttools.com)


 Chart 3: BDI's daily chart as at Feb 2014 (Source: Investmenttools.com)

Valuation

Maybulk (closed at RM2.10 yesterday) is now trading at a trailing PE of 42 times (based on last 4 quarters' EPS of 26 sen). The high PE is not a good indicator of the value of the stock due to the cyclical nature of the shipping industry.


Kenanga rated Maybulk as Outperform and valued the stock at RM2.53 based on forward FY14PBV of 1.3x which the 6-year average forward PBV for the stock. Maybulk is currently valued at 1.1x PBV.

Technical Outlook

Maybulk has rallied significantly over the past 1 year from a low of RM1.30-1.40 in January 2013 to test its long-term downtrend line at RM2.20. For Maybulk to rise further, it must break above the downtrend line at RM2.20. Its supports are at the psychological RM2.00 mark and below that, at the 50-week EMA line at RM1.80.


Chart 4: Maybulk's weekly chart as at Feb 26, 2014 (Source: Tradesignum)

Conclusion

Based on improving financial performance & undemanding valuation, Maybulk is worth accumulating on weakness. This is especially true if the stock were to ease back to the level of RM1.80-2.00. However, if the stock were to break above the RM2.20 mark, it could be a trading BUY. The catalyst for its rerating could be the group reporting an operating profit as well as the listing of its associate, POSH on SGX.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Maybulk.