Outlook for dry bulk still bearish

Analysts expect oversupply in sector to last until next year

Tuesday May 8, 2012
PETALING JAYA: Despite a 78.6% correction in the Baltic Dry Index (BDI) since the benchmark for dry bulk cargo rates bottomed out in early February, analysts remain bearish on the sector due to an oversupply that will likely last till 2014.

“Any uptick on the BDI may not be indicative of a long-term trend as the oversupply situation is still prevailing,” OSK analyst Ahmad Maghfur Usman told StarBiz.

He added that the index would probably drift downwards and continue to be volatile against the backdrop of moderating demand from China, a leading global importer, and global growth.

The BDI has declined 28.8% year-to-date and 14.2% year-on-year to 1,157 points as at 5pm yesterday. It fell below its 26-year low to 647 points on Feb 2.

Industry observers had noted that freight rates were unlikely to see any bright spots in the near term as close to 1,500 dry bulk vessels would be added to the existing fleet of 8,100 vessels globally within this year and next, putting further pressure on operators to keep rates low.

Analysts had thus maintained their underperform rating on Malaysian Bulk Carriers Bhd (Maybulk), which derives over 80% of its revenue from dry bulk.

They said its management had guided for lower revenue in its financial year 2013, after the company posted a 61.7% dip in net profit in the year ended Dec 31, 2011, to RM91.3mil.

Lower charter rates also led to a 36.6% slump in its revenue to RM256.3mil from RM404.2mil a year earlier.

In a note to clients on Maybulk's fourth-quarter results, CIMB Research said: “Earnings are likely to come under more pressure in 2012 as the overcapacity problems seem to have escalated.

“Bulk freight rates are hovering at levels where many operators find difficult to even cover their cash operating costs. Maybulk is still in the black, thanks to profitable long-term charters signed a few years ago. This could change in 2013 as some of these charters are up for renewal by end-2012.”

The brokerage added that dividends would be less forthcoming as Maybulk readied itself for acquisitions to expand its fleet.

“In the coming years, we expect Maybulk to pay little dividends as the operating environment for bulk companies remains challenging. Against our expectations of a 7-sen dividend, Maybulk declared only 3 sen, which brings yield down from 5.7% in 2010 to a mere 1.7%.

“In addition to the tough situation, Maybulk is also likely to be conserving cash, a sure sign that it is shopping around for cheap assets,” CIMB Research said.

The freight operator will grow its average capacity in dead weight tonne this year by 9% with the delivery of three new vessels, one of which arrived in January and the rest in April and October.

Another analyst said Maybulk's shares had rallied RM1.11, or 72.1%, in January after rumours that a privatisation was in the offing, although parties close to the company reportedly had said this was groundless.

The stock has since retreated 32.8% to RM1.78 as at yesterday. A total of 2.6 million shares were traded.

Its Maybulk-CC warrant, however, saw more action, ending the day the fourth most actively traded stock with 24.9 million units done. It gained half a sen to 19.5 sen.

Source : The Malaysia Star