AFTER a slight delay, the listing of PACC Offshore Services Holdings (POSH) – Malaysian Bulk Carriers Bhd’s (Maybulk) 21.23% associate – is finally getting off the ground.
Although the details are scarce, it is becoming increasingly clear that Maybulk stands to pocket a tidy sum from the exercise.
RHB Research Institute upgraded the stock to a “buy” from “neutral” yesterday with a target price of RM2.48, following its “slightly better” earnings report card for 2013.
The brokerage also sees a “solid recovery” in Maybulk’s heretofore loss-making dry bulk segment, and it thinks the stock could be a cheaper and earlier entry into POSH’s initial public offering (IPO).
Depending on the terms of the share sale, there is a potential for special dividends as well.
“We have no confirmation on whether Maybulk will divest its stake in the unit through this listing. Should this be the case, the gains could be paid out as dividends or utilised for more vessel acquisitions in the future.
“We think this catalyst has, to a certain extent, re-rated Maybulk’s valuation of late,” RHB Research transport analyst Ahmad Maghfur Usman says in a report.
POSH’s Singapore Exchange-listed peers like Ezion Holdings Ltd, Ezra Holdings Ltd, Mermaid Maritime PCL and Swiber Holdings Ltd are trading at forward price-earnings multiples of as low as 6.21 times to a high of 14.42 times, or an average of 9.88 times, Bloomberg data shows.
“We reckon that POSH’s IPO valuations could scale higher, given the strong earnings growth prospects as it doubles its fleet in the next three years,” Ahmad adds.
Shipping-based Maybulk has seen its shares seesaw over the past year on news that POSH, which it partly acquired six years ago from another Tan Sri Robert Kuok-owned entity, was seeking to list in Singapore at a supposed market capitalisation of US$1bil (RM3.28bil).
Just this week, Reuters reported that POSH’s advisers have started investor education, with the pre-marketing to last two weeks before the formal launch of the IPO.
The report said POSH could raise up to US$400mil (RM1.31bil), within the earlier expected range of US$300mil-US$500mil (RM984mil-RM1.64bil).
Its bookrunners include Bank of America Merrill Lynch, DBS Group Holdings Ltd and Oversea-Chinese Banking Corp Ltd.
When news of the listing first emerged last July, analysts had said Maybulk was better off exercising a put option to sell back its interest in POSH to the vendor at a 25% premium to its cost.
Yet, a source close to the matter tells StarBizWeek that POSH’s bankers are brandishing a US$1.6bil-US$1.8bil (RM5.25bil-RM5.9bil) valuation based on its projected earnings.
That gives Maybulk’s stake a value of between US$340mil and US$382mil (RM1.12bil-RM1.25bil) come next year.
If this is true, the deal could turn out to be quite lucrative for Maybulk.
Here’s why: Maybulk essentially has three avenues to cash out of POSH. In 2008, Maybulk had bought the 21.23% stake from its biggest shareholder Pacific Carriers Ltd for US$221mil (RM724.88mil).
There was a caveat: if POSH wasn’t listed by the end of last year, then Maybulk has six months by which to exercise a put option to hive off its shares at 125% of its cost, or US$276.25mil (RM906.1mil).
Pacific Carriers also has the right to take POSH off Maybulk’s hands at a 50% premium to the latter’s cost, or US$331.5mil (RM1.09bil), valid for six months following the expiry of the put option period.
Alternately, Maybulk can stick with POSH and ride on the offshore supply vessel (OSV) operator’s growth as a listed concern. It is yet to be known, however, if the IPO will dilute some of its interest.
So, what will Maybulk choose?
Under the previous scenario, with POSH priced at a speculated US$1bil-US$1.3bil (RM3.28bil-RM4.26bil), Maybulk’s stake would have been worth between US$212mil and US$276mil (RM695.36mil-RM906.1bil), barely touching the US$276mil (RM906.1mil) implied under the put option.
Analysts say that should the IPO fail to live up to “market expectations” – referring to POSH’s minimum value of US$276mil (RM906.1mil) for a 21.23% stake as dictated by the put option – Maybulk’s shares could buckle under pressure.
This is because most analysts have used the US$276mil (RM906.1mil) price tag as their yardstick for Maybulk’s sum-of-parts (SOP).
But the US$276mil (RM906.1mil) minimum valuation no longer appears to be an issue, helped by the upward re-rating of Singaporean OSV stocks since last year.
RHB Research has pegged POSH at 15 times earnings, putting Maybulk’s stake at US$310.98mil (RM1.02bil).
“We see further upside to POSH’s valuations, as more disclosures on the company and its outlook are made,” it says.
CIMB Research, in a note yesterday, also bumped up POSH’s SOP value in Maybulk to US$335.37mil (RM1.1bil), on the basis that POSH will be worth S$2bil (RM5.18bil) upon its debut.
The Singapore-headquartered POSH, which has one of the largest OSV fleet in the region at over 100 vessels, is known as an industry leader in the marine towage market.
Its fleet is a mix of platform supply vessels, accommodation vessels, semi-submersible barges, harbor tugs, and tugs and barges, according to Maybulk’s annual report.
POSH’ earnings contribution has helped Maybulk stay afloat since the post-crisis years, when many shippers went bust as global trade reeled from the credit crunch.
Maybulk’s own dry bulk unit has bled red ink for the past two years now, with pre-tax losses widening to RM25.61 in 2013 from RM9.54mil the year before.
But associate earnings from POSH surged, rising by more than 50% to RM54.42mil from RM35.26mil.
Analysts, in fact, expect Maybulk’s core shipping business to remain under water at least until the end of this year, although the losses will likely narrow from last year.
Shares of Maybulk have crept up steadily over a one-year period, ending Thursday at RM2.10, near its highest levels in two years, buoyed by optimism about a recovery in global shipping and the POSH listing.