Wednesday, March 17, 2010

More On Malaysian Merchant Marine

I was just chit-chatting randomly, talking ... sorry... talking about MMM (Malaysia Merchant Marine).

VSS is not say unexpected given current global environment but to VSS the entire staff is truly shocking. This says it all about the company eh?

Anyway, I was chatting about an old discussion on MMM. Here's a screen shot. Click
here. In it I mentioned OSK gigantic growth earnings projection.

I found that old OSK report.

I thought it would nice to show.


  • Charter rates for tanker and bulker have been accelerating by 40-50% y-o-y due to vessel shortage as well as increase in merchant trade
  • The forecast charter rate for tanker and bulker segments have been raised to take into account of the current spot rate
  • Performance of RoRo segment is stable with a 70% utilisation rate
  • Going forward, forecast EPS for FY04-05 raised by 69% and 75%, driven by rising charter rate and additional tanker and RoRo
  • Upgrade to a Buy with a revised 12-mth fair value of RM3.60/share

Ah.. EPS growth of 69% and 75%.

You would need to click on the picture to get a readable view.

Ahh.. some would argue that it's normal to read 'optmistic' views and 'optmistic' earnings projections.

I agree.

Business economics can indeed change.. for the better sometimes. It happens.

But... look at the date of the report. It states Jan 2004. What if I roll back to just July 2003. Just 5 months earlier.

Take a look at what OSK said in July 2003.

Look at the proce of MMM in Jul 2003. It was just 1.23. OSK Target price for MMM was 1.60. And the FY 2004 forecasted earnings for MMM was just 16.7 million.

Now let's compare these 2.

1. July 2003, price for MMM, was 1.23. OSK gave it a TP of 1.60.
2. Jan 2004, price for MMM was 2.21. OSK increased it to a TP of 3.60.

And this was justified by the OPTIMISTIC earnings projection. A earnings projection of 16.7 million became an earnings projection of 30.1 million.

(note this 16.7 million already optimistic because its previous year earnings was a mere 9.4 million)

See how 'optimistic' becomes such a lovely justification to rate a stock higher and higher?

And here's two old articles on MMM written on Star Business back in 2003. (Sorry link is broken)
  • Saturday August 16, 2003
    An ambitious marine


    MALAYSIAN Merchant Marine Bhd (MMM) is a small shipping company with big dreams. Having stood its ground during the economic downturn that rocked so many sectors and companies, it seems as if things are looking up for the marine.

    Still, not many analysts are drawn to track this low profile company. The only time it really hogged the limelight was back in December last year when Maruichi Malaysia Steel Tube Bhd announced a controversial deal to acquire a 33 per cent stake in MMM at RM3.07 per share or RM99.9 million.
    The deal was aborted following the strong outcry by minority shareholders and has since turned out to be a success story of minority shareholder activism in the country.

    Shortly after, MMM slipped back to low-key mode.

    Shape up or ship out

    In no industry is the phrase “Shape up or ship out” most relevant given the highly competitive nature of the industry and the wild swings in yields that the players are exposed to.

    The choice between the two for MMM is quite obvious. Its chief operating officer Captain Panichellvam Ratnam says over the next three years, the company will have a fleet of 20 vessels – up from 12 units currently. The expansion will roughly cost some US$60 million-US$80 million (cost per vessel ranges from US$7 million to US$10 million depending on the size and type)

    “If we keep pace with the current developments, MMM should have no problems bringing its fleet to 20,” he says in an interview with BizWeek.

    Future strategy also happens to be clearly set out. The marine will focus on three business – tankers, bulk vessels and roll-on-roll-off (RoRo) ships (used specifically to transport cars) – to ensure that its earnings are not threatened or vulnerable to just a sole segment in the transportation industry.

    “We (MMM) like to maintain focus on all three arms ... It's a very good balance, a very good distribution,” he adds.

    What's hot

    The company's foray into RoRo or vehicle carrier market is quite recent. In 2001, it acquired MMM Parana for RM11.4 million.

    Currently it has four RoRos. The move has attracted the attention of one analyst from OSK Research. “It is the only local company doing such business here. It can give lucrative returns and is set to drive the group's earnings over the next two to three years,” says the analyst.

    Panichellvam asserts that there is a lot more that can be done in this area that will be developed in the near future.

    Indeed, the RoRo market is booming. For example, he says, last year, there was tremendous demand for automobiles in China from Japan. “'This is a very interesting area we are looking at. We may be getting more (RoRo) vessels, either of the same size (as currently) or larger ones.” It is widely speculated that MMM plans to acquire another two of such vessels, but Panichellvam declines to elaborate on this issue.

    The new business venture has proven to be a boon to the group's earnings.

    Net profit grew by 12 per cent to RM9.68 million for financial year ended August 2002 from the previous year while turnover rose over two-fold to RM80.61 million. The RoRo division contributed 10 per cent to MMM's earnings and 30 per cent to sales for the year respectively.

    The company is set to report another impressive year in 2003. For the nine months ended May 2003, it posted net profits of RM7.86 million against RM85.41 million sales – a 13 per cent and 38 per cent rise respectively from the previous corresponding period.

    At home and abroad

    Both on the domestic and regional front, things are looking up for MMM. “In the Asean region, Malaysia currently is the only nation with huge domestic (vehicle) trade because of the movement (from Peninsula Malaysia) with Sabah and Sarawak. The rest of the regions like Indonesia and Philippines currently lack buying power ? but things in these countries are picking up, which will benefit us eventually,” says Panichellvam.

    Another plus point for MMM is that its carriage of vehicles is expected to get a boost from the removal of trade barriers within the Asean region as a result of Asean Free Trade Area (Afta) Regulations.

    “With the advent of Afta we are looking to be more of a regional player than a domestic one ? Laem Chabang in Thailand is an important (automobile distribution) centre, Philippines, Jakarta in Indonesia and the emerging Indian market especially Chennai will bring tremendous development in this area,” he adds.

    Creating a vehicle transhipment hub

    The group seems to be moulding itself into a vehicle transhipment hub. To do that however, it would need to tie-up with the region's big RoRo players. Such plans are in fact already being thrashed out by the senior management.

    Basically, MMM is keen to transport vehicles to Asean member countries after giant RoRo players have transported the automobiles from Japan and other manufacturing countries to the regional hub. Some of the big players here would include names like Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha and Mitsui OSK Lines.

    “We (MMM) are looking at supplementing the larger players in the RoRo sector, we are very capable of handling such a project...we are looking at it,” says Panichellvam.

    Such aspirations are quite well placed given that two of its RoRo vessels are already operating on the international front while the remaining two ply domestic routes.

    As a first step towards this plan, in July this year, MMM acquired almost 49 per cent of MMM Siam Shipping Company Ltd – a company set up in February this year with business in ship management, cargo collection and doubling up as a transit centre for shipping vehicles – for RM11,266 cash. In an announcement to the Kuala Lumpur Stock Exchange, the company said the acquisition would provide MMM with a good position in the Asian vehicle transportation market and more specifically in the “Detroit of the East” which Thailand is commonly referred to as.

    In anticipation of such a move, the share price of MMM rose significantly just two weeks prior to the announcement. MMM's share price surged to a 52 week high of RM1.38 on July 14 this year.

    And another good thing – MMM has little to worry about in terms of emerging rivals as the analyst says the high barriers to entry in the RoRo segment will stave off competition. Relatively, each RoRo vessel costs between RM40 million and RM50 million, which is rather high compared to a conventional vessel. Offsetting this, however, is that generally, RoRo vessels command higher charter rates compared to both bulkers and tankers and require less maintenance costs.

    Pick up in growth

    Apart from the RoRo division, growth in the other two areas – tanker and bulker divisions – have also picked up rather strongly as freight rates have stabilised recently after a protracted decline. Against this backdrop, MMM stands to reap significant benefits, particularly following its timely acquisition of another tanker MV MMM Kingston earlier this month.

    The bulker and tanker divisions contributed 40 per cent and 30 per cent respectively to group sales in financial year (FY) 2002.

    A shipping analyst points out that freight rates have climbed steadily by some 15 per cent so far this year and are expected to rise similarly next year. He expects MMM's earnings to rise by 20 per cent and 33 per cent in FY03 and FY04 respectively on the back of higher freight rates and the recent acquisition of the 7,000 dead-weight tonne tanker – MMM Kingston.

    MMM Kingston has been chartered out to a Korean oil company on a two-year contract. The contract was secured prior to the acquisition. Typically, shipping companies ensure that they have a contract in hand before they move forth to make any vessel acquisition.

    Panichellvam enthuses over the prospects of the tanker sector. “It's picking up, it's getting interesting ? there are marked improvements in the sector, in line with the opening up of markets with the WTO (World Trade Organisation) regulations ... the opening up of palm oil barriers.”

    MMM plans to continue to tap the opportunities of rising freight rates in the industry. It plans to acquire additional vessels, one of which has already been delivered and another, a RoRo, possibly by next month.

    “In the last 10 years, this is probably the best time, apart from last year that is, to acquire ships ... so, why not,” Panichellvam says, referring to the attractive prices of vessels in the current environment.

    Building bulk

    Similarly, bulk rates are on an upward trend, hence lending a bright outlook for this division that is currently the group's largest sales contributor. The rates have risen by 70 per cent from last year to around US$18,000 per day presently.

    Currently one of the company's four bulk vessels is a cape size vessel chartered out at about US$13,000 per day on a long-term contract. This rate is 70 per cent higher from the rates charged in 2002.

    Despite the global trend of bulk business losing out to containerisation, Panichellvam seems quite bullish on the prospects of the division. “This sector focuses on the ports which are still not ready for containerisation ? these ports are in China, the Philippines ... Containerisation requires the ports to have gantry cranes and other such equipment which require high capital. As such, it will take some time before all the ports in Asia can switch to containerisation. (Meanwhile), we should have no problems.”

    MMM is also looking at adding on more bulk vessels as part of a larger fleet expansion plan to capitalise on potential lucrative contracts for iron ore and coal transportation in the country.

    Some of these large contracts are likely to come from the coal-fired Janamanjung, Tanjung Bin and Kapar power plant projects. The coal carriage contract for Tenaga Nasional Bhd's Janamanjung plant alone is valued at US$400 million.

    “The first shipment is expected to involve three million tonnes of coal a year and is expected to grow to 20 million tonnes once the plant starts to operate on full capacity,” says Panichellvam.

    Local shipping companies like MMM are expected to benefit tremendously from these developments as generally, in terms of transportation needs of the country, they are given priority over the foreign players.

    The potential overseas seems just as robust. There is an increasing demand for coal and iron ore in large markets like Japan and China that adds to the appeal.

    “Japanese power plants are now increasingly reliant on coal while China requires a lot more iron ore. This works to our advantage as the demand outweighs supply making it easy for us to lock in contracts,” he adds.

    Bright outlook

    The outlook for the company and the industry as a whole, Panichellvam says, is bright. “Now ? not only for Malaysian Merchant Marine, but for all the shipping companies locally the only way is up. We (MMM) learnt a lot during the downturn in terms of out sourcing, even procuring spare parts, we started at the peak time and went through the worst of times.

    Now the only way is up,” Panichellvam says.

And here's the other.

  • Saturday August 16, 2003
    Riding on luck

    IF luck has anything to do with running a profitable shipping company, main board listed Malaysian Merchant Marine (MMM) must be among the favoured few.

    The company made most of its main acquisitions, its vessels, in the 1995/96 period when the shipping market was at it’s most bullish, locking in with reputable chatterers with long-term contracts.

    Chief operation officer Captain Panichellvam Ratnam of Malaysian Merchant Marine Bhd reminisces, “During that time it was the peak of the (shipping) market, and we never did any domestic trade ? all our contracts, everything was international, meaning our earnings were in US dollars, majority of our loans were in Ringgit, that pulled us through,” he says.

    Not much has changed since the early days. Today MMM has a gearing of only about one time with loans of about RM140 million of which only some 25 per cent is in US dollars.

    Still riding on its luck, the company, it is believed, is now planning to take advantage of the low interest rates available in the market, to refinance its loans in the hope of reducing interest expenditure to five per cent from current levels, which even reach nine per cent.

    An analyst from OSK Research says the company's interest coverage ratio is expected to improve from 3.7 times for the current financial year to 4.9 times and 5.6 times in the coming two financial years.

    Armed with the experience garnered in the last downturn, and remaining cautious and prudent despite the spate of good luck over the last few years, MMM, Panichellvam believes, will continue to do well.

    “We have to be cautious especially now with the freight rates going up. The chatterers are looking at tying-up long-term contracts while the rates are still gradually, slowly moving up ? we on the other hand cannot lose out by tying-up on long-term contracts with the rates still not hitting its peak ? somewhat like a game,” he adds.

Riding on LUCK?


Anyway... back to OSK and its optimistic earnings projection.

Now do you wonder how MMM fared for its fy 2004?

Well... take a look Quarterly rpt on consolidated results for the financial period ended 31/8/2004

According to that quarterly earnings notes, MMM just earned some 10.9 million for its fy 2004.

OSK's projection? 30.1 million!!!

Go figure!