Maybulk: Light At The End of The Tunnel?

 

A few years ago, I read an article written by respectable investor "Cold Eye" regarding Maybulk.

It was published in end of year 2018. He opined that dry bulk shipping industry was recovering from 10-year slump and might turn bullish partly contributed by lower supply of bulk carriers.

I think I came across this article only in 2019. I checked Maybulk's recent financial performance and it was all red. Straight away I lost interest in it at that time. 

I didn't study the stock and the industry at all.

Now, after a reader mentioned Maybulk in this blog, I started to look at it again.

After studying Maybulk, I learn something new about the shipping industry.

In general, there are 5 types of cargo ships:

• Containers ships: carry containers
• Tankers: carry liquids (oil, chemical) or gases
• Dry bulk carriers: carry unpackaged dry bulk cargo
• Reefer ships: carry temperature-controlled goods
• Roll-on roll-off: carry wheeled cargo (cars etc)

Dry bulk carriers generally carry dry goods in bulk as its name suggests, which include grains, coal, iron ore, steel, cement etc.

They are mainly categorized according to their size. While many different kinds of categorization exist, I think this is the basic one:

• Mini (DWT < 10,000), DWT = Dead Weight Tonnage
• Small (DWT 10,000 - 25,000)
• Handysize (DWT 25,000 - 40,000)
• Handymax (DWT 40,000 - 50,000)
• Supramax (DWT: 50,000 - 60,000)
• Panamax (DWT 60,000 - 100,000)
• Kamsarmax (DWT 80,000 - 85,000) a variant of Panamax
• Post-Panamax (DWT 80,000 - 120,000)
• Capesize (DWT 100,000 - 200,000)
• Very Large (DWT > 200,000)

As we can see here, some of the names have relation to certain location. Panamax is named after Panama canal and it indicates the size limit of ships travelling through the canal.

Meanwhile, Kamsarmax is suitable for berthing at Port of Kamsar in Guinea, West Africa. There are other carriers named after a location such as Malaccamax, Newcastlemax, Chinamax, Suezmax etc.

Different sizes of bulkers have different demand and charter rates.

BDI (Baltic Dry Index) is an index of average prices paid for the transport of dry bulk materials across more than 20 routes. It is a composite of 3 sub-indices which are Capesize, Panamax & Supramax.

From historical BDI chart above, we can see that there was a super bull run starting from year 2003 up to 2008 when it fell sharply coincided with global financial crisis.

After that, the industry has been in cold winter until recently when the BDI breaks 3,000 points which is its highest since year 2010.

The graph below shows BDI year-to-date.

Maybulk currently has 8 dry bulk carriers: 3 Kamsarmax, 3 Supramax & 2 Handysize, with one of the Handysize committed for sale.

Between 2006 to 2010, Maybulk had as many as 14-18 carriers including a few tankers. Now it only has 8 bulkers with zero tanker. It has aggressively reduced its fleet size from 20 vessels in 2016.

The bar chart below shows daily time charter equivalent rate for Maybulk from 2003 to 2020. It achieved its highest net profit of RM578mil & RM522mil in FY2007 & FY2008 respectively.

 

Year 2021 should be a good year for Maybulk, as the BDI has hit 10-year high. Of course it will not reach the profit level of those years but it will surely turn profitable.

Its FY21Q1 (Jan-Mac21) net profit was RM15mil. As FY21Q2's BDI is almost double the BDI in FY21Q1, I think its FY21Q2 result will improve even though it might not double Q1's profit depending on the time and duration of the charter contracts.

Since BDI include Capesize charter rate which Maybulk does not operate, it's more accurate to look at the Supramax, Handysize and Panamax charter rates.

       Above: Supramax rate

       Above: Handysize rate

       Above: Panamax rate

From the price charts above, it seems like they "perform better" than the BDI, especially for Supramax in which its rate has risen 3x since the start of 2021.

However, no one knows for sure whether the charter rate will continue to rise or drop back, and if it goes up, how long can it persist.

At the moment, it seems like demand for commodities and thus bulk carriage service is high, aided by recovery from Covid-19 pandemic with high China and US demand.

At the same time, order book for dry bulk carriers has been dropping since year 2010 and currently it sits at all time low.

So it seems to me like the higher charter rates might be able to sustain for quite some time.

Currently at 3,255 points, can the BDI reach 4,000 points?

Personally I hope that it can, and Maybulk's net profit FY21 can exceed RM80mil. That's why I decided to invest in it.