The largest dry bulk shipowner in Malaysia, Malaysian Bulk Carriers (MBC) may deliver remarkable results from the third quarter of its current financial year onwards as the dry bulk market is expected to remain strong.
An analyst with a bank-backed research firm reckoned that MBC may stage strong quarter-on-quarter performances from its third quarter ending September 30, which is in sync with the global economic recovery.
“It will be a strong third quarter performance for MBC. The dry bulk market recovery in tandem with the global economic recovery is expected although supply chain challenges may persist in the short term,” the analyst said.
MBC, listed on the Main Market of Bursa Malaysia Securities, is engaged in international shipping and currently owns and operates a fleet of vessels which includes dry bulk carriers and product tankers. MBC’s vessels are largely tramped on the spot and period markets.
MBC’s bulk carriers, ranging from 29,000 dwt to 87,000 dwt are involved in the transportation of dry cargoes comprising major bulks such as iron ore, coal (steaming and coking coals), grains and minor bulks like sugar, coke, fertilizers, among others.
The company also operates tankers ranging from 47,000 dwt to 47,999 dwt. Apart from its own vessels, MBC also charters-in third party vessels to service contracts of affreightment commitments.
Dry bulk market to remain strong
MBC said the dry bulk market is expected to remain strong through the third quarter supported by the increase in infrastructure demand in key regions following the pandemic-related stimulus spending and a rebound in economic and industrial activity globally.
According to MBC, Covid-related disruptions have led to congestion in ports particularly in China, and this has further tightened the supply of tonnage in the near term and supported freight rates.
“Record high freight rates for containerized cargoes and a severe lack of ship capacity are forcing some shippers to turn to the dry bulk sectors. However, de-containerized volumes appeared to be slowing down with the supply chains able to adjust to accommodate longer lead times,” MBC said in a filing to Bursa Malaysia on August 13.
China’s economic risks are growing
MBC said China’s economic risks are nevertheless growing with a combination of both slowing growth and inflationary pressures building. “Chinese iron ore imports are likely to come under pressure towards year end if steel output restrictions are imposed, and risks around China’s energy transition remain,” the company said.
“The impact of the Covid Delta variant is likely to weaken global demand particularly in China and this sets a more cautious backdrop to the final quarter of 2021 and into 2022, with freight rates expected to remain volatile,” it added.
Price of second-hand vessels at historic high
MBC also said that the current strong dry bulk freight market has resulted in second-hand prices for dry bulk vessels to be close to historical highs. “As compared to the end of last year, the price of a 10-year-old Supramax dry bulk vessel has increased by more than 75 percent. The current high prices present a good opportunity to monetize such dry bulk assets.” the company said.
As such, MBD has seized the opportunity to sell its M.V. Alam Madu and M.V. Alam Molek, with the expected completion of the sales in the third quarter of this year.
MBC maintains good earnings
For its first half ended June 30 2021, MBC posted a profit before tax of RM47.108 million (US$11.3 million), an improvement of RM12.097 million (US$2.9 million) compared to a profit before tax of RM35.011 million (US$8.4 million) in the previous corresponding period. MBC said this was mainly due to a gain on disposal of a vessel of RM6.556 million (US$1.5 million) and a non-recurring gain on derecognition of a joint venture of RM6.869 million (US$1.6 million).
Operationally, MBC recorded higher revenue of RM89.285 million (US$21.5 million) for its first half of financial year 2021 compared to RM64.566 million (US$15.5 million) in the previous corresponding period.
MBC reported an operating profit of RM42.409 million (US$10.2 million) for the first half of its current financial year 2021 compared to an operating loss of RM3.160 million (US$762,000) in the first half of its financial year 2020. The company said the improvement in operating performance was mainly due to a 84 percent increase in charter rates, lower operating expenses from a smaller fleet size and redelivery of two loss-making chartered-in vessels.
MBC completed the disposal of a handy sized vessel (M.V. Alam Sejahtera) with net proceeds of RM56.814 million (US$13.7 million) in the first half of it financial year 2021 and a total gain on disposal of RM6.556 million (US$1.5 million).
In addition, MBC entered into a share purchase agreement on June 21 to acquire the remaining 50 percent share in the joint venture company, Novel Bright Assets Ltd. This acquisition has resulted in a gain of RM6.869 million (US$1.6 million) from the reclassification of the foreign exchange differences from equity to profit of loss upon the derecognition of the joint venture.
Excluding exceptional items, MBC reported a profit before tax of RM33.678 million (US$8.1 million) in the first half of its financial year 2021, an improvement of RM49.930 million compared to the loss before tax of RM16.252 million in the previous corresponding period.
“In summary, MBC posted a profit for the period of RM47.063 million (US$11.3 million), an increase of RM12.114 million (US$2.9 million) compared to RM34.949 million (US$8.4 million) in the first half of financial year 2020,” the company added.