Malaysian Bulk Carriers ; Buy
Price Target: RM2.10; MBC MK

According to The Financial Daily, MBC is set to list its 21.23%-owned associate, PACC Offshore Services Holdings Pte Ltd (POSH) by end-13 or early next year. Its CEO Kuok Khoon Kuan said that the IPO will take place in Singapore after the group’s AGM yesterday.

To recap, MBC first bought 21% stake in POSH in Dec08 for US$221m. It came with the option to sell the shares at 125% of its subscription price by end-2013 if there is no IPO for POSH, translating into c.RM840m cash returns to MBC. POSH currently operates a fleet of c.100 offshore vessels and will continue to take delivery of several vessels including two semi-submersible accommodation vessels. POSH’s total capex is more than US$600m, according to Mr. Kuok.

We believe that the impending listing of POSH will be MBC’s re-rating catalyst. Significant FY12 earnings growth of 107% is a strong testament of the booming offshore OSV market and new vessel deliveries within these 2 years will continue to underpin its strong growth trajectory. While details on POSH listing remains sketchy at this juncture, our back-of-envelope calculation indicates MBC’s stake in POSH could be worth RM870m (55% of market cap) based on 12x PE multiple and 30% earnings growth in FY13, which might be conservative given the robust outlook in the offshore market.

We maintain our BUY rating and RM2.10 TP, based on 1.2x P/BV multiple, its mean valuation since MBC’s listing. The stock is currently trading at -1SD of its mean P/BV valuation, at the low range of its historical range. We continue to like MBC given the near-term catalyst from POSH listing as well as the improving supply-demand dynamics in the shipping market which is pointing towards an inflection point.

Source: HwangDBS Research - 29 May 2013