Why MAYBULK is likely to report at least another 2 more +ve quarters!
After a huge bumper dividend that will furnish my single largest dividend cheque from a listed company ever, M'sian Bulk Carriers(MB) has corrected back to the levels of Oct '20(before adjusting for the 10c dividend) preceding an upsurge to a peak of 85.5c last year on the market's anticipation of a huge turnaround in its fortunes, with the shipping market booming on the crest of a wave of charter rate elevations as reflected in the Baltic Dry Index's levitation from 1,370 points at the end of 2020 to a peak of 5,650 points in early Oct 2021. Since then, it has rollercoastered down to 1,515 at this moment, the largest capesize component(which is not relevant to MB) responsible for most of the volatility.
MB did well to dispose of 4 vessels, reaping large capital gains of M$148.067 mil on these ships around the crest of this boom & in the process, its balance sheet has turned around from a net debt of M$198.458 mil to a M$259.358 mil net cash position (with NO DEBT for the 1st time since its 2003 IPO & back till its earliest available data for '99) even after paying out the abovementioned M$100 mil dividend to long-suffering shareholders. This is a remarkable turnaround of about M$557 million in the space of 21 months accompanied by a non-current asset & cash increase of M$200 million[ M$667 mil = cash proceeds + M$238 mil vessels at book at Sep '22 minus M$467 mil book value of ships at end '20]
3Q '21 was the 1st time the balance sheet was in a net cash position since 1Q '14 & 3Q '22 saw the highest such figure since 1Q '09, though still far from the record M$1.1 billion net cash in mid-2008, at a time when the fleet was 4X larger & the shipping index was briefly 7-8X higher.
Now, it seems many are worrying that, with these indices plummeting down to approach 4Q '20 lows, that MB will again report the string of losses that I got so used to as a shareholder from 2015-2020.
I will stick my neck out & forecast that MB will enjoy at least another 2 more quarters of +ve EPS, barring the widely-predicted recession in '23 dragging the shipping indices back to 3-digits again.
Looking at the comparison with 4Q '20 & 3Q '22 above, we can see that even with the Baltic Panamax Index(which better reflects half of MB's shrunken fleet & all of its owned ships) 13% higher over the last quarter of '22 compared with the same time in '20, MB's declared charter rates were 87% higher in 3Q '22 in comparison with 4Q '20, perhaps due to timely long-term charters. The probability that the 4Q '22 rates will be much lower than $19,269 per day is not great given that this index has not declined much in comparison with 3Q '22.
And even if they were, say down to $13-17,000 in this year's final quarter, how likely will it be a loss-maker when MB still managed a small operating profit of M$4.254 mil(0.42c) in 4Q '20 when the declared rates were only $10,306 per day? It would take a lot of unforeseen write-offs and/or mark-to-market losses to turn a $13-17,000 per day rate quarter into a loss-making one when $10-11,000 per day was sufficient for a M$4 mil gain(probably equivalent to M$2 mil with today's reduced fleet size)! On top of this, MB began to earn interest on its growing cash pile, amounting to M$1.321 mil in 3Q '22 & likely more in the 4Q to be reported in late Feb '23 given the rising interest rates since Jul '22.
Of course, persistent inflation over the course of 2022 would also have elevated its voyage expenses, as evidenced by the 43% hike in this figure in the latest quarter compared to 4Q '20, as well as its operating expenses, though the latter would likely be smaller due to the shrinking fleet size.
However, my prediction is that these would be comfortably offset by the handsome charter rates earned in comparison with 2 years prior.
Furthermore, should MB decide to dispose of its remaining fully-owned Kamsarmax vessels, they would easily command a total price north of M$280 mil (>28c per shr) given they are less than 5 years old & already compliant with pollution-reduction regulations, with an estimated profit of M$30-50 mil per ship. Such a disposal is however unlikely due to these factors:
a. They are the last remaining large ships still under MB's full ownership & are barely 4-5 years old
b. At declared charter rates, they are earning around 7-15% ROI per year, bringing in precious King Dollar revenues
c. Longtime major shareholder & related party PPB Group may object to a complete disposal of all MB's remaining owned ships.
On another topic of ownership, I notice that it's interesting that Kuok Brothers disposed a large chunk of 32% of MB split equally between two new owners who apparently have no prior relationship & the trio (Goh CH, Tunas & Kuok, including an indirect stake held via PPB Group) now own 16%, 16% & 16.4% respectively, with the famed tycoon owning slightly more than the other legs of this ownership triangle. Was it deliberate, with the intention that Kuok Brothers would have the upper hand in nominating directors to the board to protect flagship PPB's shipping needs? One can only speculate, but the original owner could have cleared out lock, stock & barrel but didn't, leaving an incongruous 24.615 million shares still in its possession & its associate PPB not selling a single share(probably because it may require MB's ships for transport of its commodities, with one of the above Kamsarmaxes now sailing to Zhoushan,China from Bahia Blanca in Argentina likely carrying a cargo of soybeans & other dry goods).
I would rate MB a BUY at any price below 35c with its net cash per share at 25.9c & its current asset minus total liabilities at 32.4c(22.4c after deducting the dividend payout), compared to the 43.4c-54.9c in 2-4Q '06, 86.8c, 67.7c,69c & 105.3c in 1-4Q '07(net-net & net cash per shr peaked @ 127c & 122.4c in 3Q '08), to 56.6c at end '08, during the largest boom when the Baltic Dry rocketed from 3,000 to a new record of 6,500 by mid-'07 & vertically to a peak of 11,793 on May 20, '08, 57.2c in 1Q '09, 34.7c in 1Q '11, 30.3c, 29.1c & 29.5c in 1-3Q '12(after which the net-net & net cash figure dropped to 20.9c & 17.5c at end '12, 19.1c & 14.4c in 4Q '13, 17.6c & 15.4c in 1Q '14 before slipping to a net-net & net debt of -4.3c & -6.3c in 2Q '14 & all the way down to -58.2c & -46.7c at the time of its worst annual loss in '15, also the last time the shares traded above M$1) & way above the 7.4c & 14.4c figures at the end of last year.
A provisional target of 49.5c with a probability of 56% is forecast in the absence of unexpected surprises in the coming year.
posted by DP @ 5:28 PM
0 comments
