Monday, January 21, 2008

Another update on Maybulk

Here's an update on Maybulk.

Previously, I had posted on the
Regarding the Dry Bulk Shipping Sector, in which I had made an update on it here: Update on the Baltic Index.

I then had highlighted the sharp decline on Maybulk on the posting,
Maybulk And The Baltic Index.

This morning, OSK released a report on Maybulk, acknowledging the sharp decline on the Baltic Dry Index but reckons that it's just a temporary blip!

Here is the snippet of what's being said in the report.

  • Malaysian Bulk Carriers
    Between a Rock and a Hard Place

    BUY Maintain
    Price RM3.94
    Target RM5.90

    The recent sharp drop in the BDI according to sources has been attributed to protracted iron ore price negotiations with buyers and sellers supposedly keeping away from booking ships to create opposing perceptions of a shortage in demand and supply. We expect the BDI to rebound sharply in May when negotiations are resolved. For now, even at current levels, shipping rates are excellent when compared to historical averages. We downgrade our earnings for MBC slightly to account for recent BDI volatility but the company remains a Buy with 49% upside.

    Sharp drop in BDI. As the BDI had exceeded expectations on the way up, so too has the severity of its fall. Share prices of dry bulk shipping companies have retraced together with the BDI and MBC is no exception.

    Probably due to iron ore price negotiations. Indications from industry sources are that iron ore sellers may be holding back cargoes and buyers may be holding back orders as both sides negotiate on the new iron ore prices for the shipping year beginning 1st April 2008. Sellers were reportedly looking for a 50-70% hike while buyers were only keen on accepting a 20-30% hike. The current high price of coal has also led to some parties holding off new orders until February.

    Temporary blip in the BDI. Indications point to demand for iron ore from Chinese steelmakers still being strong and it appears only a matter of time before ore prices are agreed upon and shipping orders come flooding back into the market. Freight forward agreements, which show an uptick in May, seem to support this view.

    Rates at this level still very profitable. Even at below the 6500 pts level, the shipping rates that dry bulk ships will enjoy is still very good. To note that Panamax and Handymax rates have held better than for Capesize vessels.

    Still a Buy. Undeniably, sentiment on MBC has been hit by the sharp slide in the BDI. But with the BDI expected to rebound in May, an excellent set of earnings and a bumper dividend to be announced in February, we maintain a Buy recommendation on MBC. We have tweaked our earnings down by 2% to account for BDI volatility and our fair value is adjusted down to RM5.90.

Now, here's an issue not to be discounted. The BDI has dropped a 37% Since Mid November! And in OSK report, it said they had 'tweaked our earnings down by 2%' to account for the BDI volatility.

Just 2%?

Anyway, here is the earnings tables from OSK.

Now if you look at the 2007F and 2008F forecast numbers, don't you think that OSK is still extremely bullish on the stock?