Saturday, 28 February 2015

Maybulk: large paperlosses on its investment in POSH (2)

In my previous post on this matter, I wrote:

"... if Maybulk decided to mark its investment in POSH against the market price (which sounds pretty reasonable to me), then it has to account for a one-off loss of RM 540 Million."

Maybulk announced its quarterly results and, as expected, the company did not mark its investment in POSH down against the market price. Although POSH's share price keeps on going down (at the moment it is SGD 0.52, 55% below the IPO price), Maybulk in actual fact managed to book a paper profit on its investment.

That does sound rather puzzling, how can one book a profit on an asset that only goes down in value?

The "trick" is that the SGD is going up compared to the RM. Maybulk is taking that into consideration, but not the (much larger) decrease in price of POSH's share.

The value of POSH in Maybulk's account is now a whopping RM 1,334 Million. However, the market value is only about RM 533M, a difference of about RM 800 Million.

In other words: although Maybulk's investment in POSH has been most disappointing, the share price of POSH has tumbled, the dividends received by Maybulk have been peanuts, "the share of results of an associate" (due to POSH's profit) has been small (and anyhow a non-cash item) and there is no clear exit down the road, Maybulk still continues to book paper profits on it.

According to Maybulk its own shareholders equity is close to RM 2.0 Billion. If we subtract the above RM 800 Million from it, then the adjusted net asset value is close to RM 1.2 Billion, about 40% less.

Maybulk's current market cap is RM 1.28 Billion, much closer to the adjusted net asset value than Maybulk's value. It seems the market values Maybulk according to its adjusted NAV, not the NAV in its books. That says something.

I am pretty sure that Maybulk's accounting is all according to the international accounting standards, and that the auditors will sign off on them.

Those standards are definitely not mine, I think they are pretty ridiculous. I think that if an asset is valued in a normal functioning market then that value gives a much better reflection than some paper value derived from the amount invested corrected for the share of results and currency fluctuations.

At the very minimum, Maybulk should inform its shareholders about the huge gap between the valuation in its books versus the valuation according to the market. Unfortunately, Maybulk's transparency has "not exactly" been great, and this rather obvious comparison is not made.

Will the 2014 year report give more information on this subject? I doubt it, but hope to stand corrected.

To add to the rather bleak situation, things don't look rosy in the near future either: "The Board expects 2015 to be a testing year for the group."

Maybulk announced a dividend of only 1 cent. It has 151M cash versus RM 347 M borrowings due to its continued investments in POSH.

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