SHIPPING company Malaysian Bulk Carriers Bhd's (Maybulk) forward earnings are expected to see upward surprises, propelled by record high freight rates.
“Maybulk is the best bet to ride the buoyant market as 45% of its expected current year revenue is derived from spot bulker rates,’’ CIMB Securities wrote in its recent report on the company.
Freight cost for major raw materials like grain, coal, iron and other ores has gone ballistic since September last year, smashing records on a weekly basis.
“There is strong demand for cargo vessels, especially to China,” Maybulk executive chairman Teo Joo Kim was quoted as saying after the company's listing on the MSEB main board last December.
Based on current industry reports, bulker rates are expected to remain high well into 2005 with China's rapid industrialisation as the key factor in pushing demand for global cargo movement, while shipping capacity supply growth lags behind.
The Baltic Dry Index (BDI), an indicator of the global dry-bulk freight market for commodities, closed above 5,000 points for the first time ever on Jan 10. The index was quoted at a new high of 5,681 points on Wednesday.
For comparison, the BDI averaged 2,600 points last year and 1,130 points in 2002.
Some international shipping brokers are saying the market is likely to remain high with major commodities trading fundamentals looking solid while the world global bulk-carrier fleet is not expanding fast enough.
The current developments augurs well for Maybulk, the listing of which showed good timing. Currently, about 65% of Maybulk's revenue comes from the dry-bulk freight division and the rest from its clean tanker operations.
At yesterday's closing price of RM2.70, the stock had gained close to 130% from RM1.19, which was the price retail investor paid for its initial public offering two months ago.
Institutional investors paid RM1.38 per share under a book building exercise for 2003's second largest IPO, which was oversubscribed by more than 30 times.
Obviously the surging bulk rates had already made an impact on the group's share price performance as well as its bottomline.
Its nine months' net profit for the period ended Sept 30, 2003 rose to RM94.24mil, just missing its full year prospectus net profit estimate of RM94.9mil.
Analysts are expecting the company to surpass its 2004 net profit forecast of RM108mil, or earnings per share (EPS) of 13.1 sen a year, early.
“Shipping rates show no signs of abating and if current rates hold into December this year, we conservatively project Maybulk's EPS at 27.6 sen,'' Jupiter Research said.
Another local research house projected a slightly lower EPS at 22.6 sen for the current year, but added that the stock's current valuation is at a discount compared with its regional peers.
Analysts reasoned that the stock should be trading in line with foreign bulkers' share pricing of around 15 times EPS, but higher than Malaysia International Shipping Corp Bhd's due to its higher growth prospects.
Maybulk's strategy to leave seven out of 11 dry-bulk vessels in its fleet to trade on the spot market rate would enable the company to reap higher profit as rates improve.
“An explosive doubling of charter rates for dry bulk vessels combined with fluctuating but generally higher charter rates for clean tankers offers a window of opportunity in this business,’’ Jupiter Research said.
Analysts are also bullish about the timing of delivery for Maybulk's five new bulker vessels and six product tankers, expected to come into service in stages by early 2006.
This would add to the company's current line-up of 11 dry bulk carriers and four tankers.
Jupiter Research attributed the company's strength to its major shareholder, the Kuok Group led by tycoon Tan Sri Robert Kuok, which controls 47.5% of the company through Pacific Carriers Ltd and Malayan Sugar Manufacturing Bhd.
Pacific Carriers has been in the shipping business for over 30 years and is a major player in the regional shipping market.