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 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 its net profit FY21 can exceed RM80mil. That's why I decided to invest in it.
http://bursadummy.blogspot.com/2021/06/maybulk-light-at-end-of-tunnel.html
