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Stocks In Focus MY (M’sian Bulk Carriers, MUI, TSH Resources) – 25/02/15

MAYBULK (5077), MUIIND (3891), TSH (9059)

Maybulk To Build 5 More Ships, Sets Aside RM400m For Capex

Although plummeting charter rates cut Malaysian Bulk Carriers’ FY14 net profit by 72.7 percent to RM12.2 million, the firm plans to build five new ships to expand its fleet size to 27 vessels by 2018. In addition, the firm has reserved some RM400 million for capital expenditure over the next three years for expansion.
   
The group said that it continues to be profitable albeit at a much lower level, unlike many other shipping companies which are increasingly experiencing financial problems as a result of the gloomy prospects in the shipping market. Its performance during the year had been affected by lower contributions from associate PACC Offshore Services Holdings.
   
Losses in the firm’s core business, its dry bulk segment, increased to RM48.8 million as a result of a poorer time charter market, initial expenses for new deliveries of fleets, compliance costs to fulfil higher emission requirements and a provision for onerous contracts with regards to the charted-in vessels. With the fall in charter rates to levels last seen in 1986, the average daily revenue of a vessel in the firm’s dry bulk and tanker fleet has dropped to about US$9,400 a day.

Significance: After fleet expansion, the company’s capacity to ship iron ore, fertiliser and coal from will rise from 1.2 million deadweight tonnes (dwt) to 1.5 million dwt. The company expects 2015 to be another dismal year for the industry due to faltering demand in major economies in addition to extended tonnage overcapacity and the marginal growth in global trade flows.

MUI Hit By Weak Retail Sales

Malayan United Industries (MUI), the owner of the Metrojaya departmental stores, fell into the red in FY14, with a net loss of RM7 million recorded. The firm’s revenue fell 8.1 percent to RM598.9 million, mostly because of the poorer performance of its departmental stores and certain specialty stores.
   
With regards to the group’s Malaysian retail division, Metrojaya’s revenue fell 13.1 percent to RM319.8 million while its pre-tax profit plunged to RM1.2 million. Its Malaysian hotel operations recorded a slight drop in revenue while its profits marginally improved due to lower expenses. The group’s British hotel operations recorded a higher revenue and pre-tax profit, chiefly caused by the increase in guests.
   
At the same time, MUI Properties also announced its results. The firm was also in the red with net losses of RM14.9 million. Revenue fell by 47.3 percent to RM32.7 million because of lower sales of its property development project in Bandar Springhill, the one-off revenue of RM11.6 million from the disposal of development land at Port Dickson in 2013 of RM11.6 million.

Significance: Going forward, the group remains cautiously optimistic on the earnings of its various businesses, against the back drop of uncertainties in the global economy and the implementation of the goods and services tax in April. It has also been rumoured that Tan Sri Khoo Kay Peng, MUI’s 47.7 percent owner may sell his stake in the group.

Lower CPO Prices And Bad Weather Dampen TSH Earnings

Sabah-based plantation group TSH Resources posted a 55.2 percent drop in net profit in 4Q14 to RM13.7 million as revenue slipped to RM244 million due to lower crude palm oil (CPO) prices and severe weather conditions in Indonesia which has affected its palm oil production during the quarter. FY14 net profit contracted 16.9 percent to RM125.5 million.
   
On a better note, the firm was able to increase its gross profit margin to 34.6 percent in FY14 (FY13: 29.8 percent) despite cost pressure in the industry. It was noted that the firm’s fresh fruit bunches (FFB) production rose 18 percent in FY14 as a result of an all-round improvement in the yield of its fully matured oil palm plantations which are currently capable of achieving an average yield of 30 tonnes per hectare.
   
During this period of subdued CPO prices, the group believes it has to place more emphasis on yield improvements and cost-controls. However, it expects CPO prices to increase in anticipation of the higher biodiesel subsidy in Indonesia and lower crop production in 1H15, following the dry weather conditions in 2014 in Indonesia and Malaysia. It opines that in the long term, CPO prices will find their support from the rise in demand of oils and fats which are expected to exceed the supply of edible oil.

Significance: In tandem with the lowered earnings, TSH has declared a first and final dividend per share of RM0.025, down from RM0.035 in FY13. Given that the group’s remaining 75 percent of plantation trees are still immature or young mature, FFB production could record a double-digit growth for the next few years. The group also shared that it has plans to expand plantation land in Malaysia while still focusing on its palm oil business in Indonesia.


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