Wednesday, 3 February 2016

Maybulks profit warning

Maybulk announced a profit warning:

The Company wishes to inform its shareholders and potential investors that the Company expects to record a substantial loss for the fourth quarter of 2015 (4Q2015) and the financial year ended 31 December 2015 (FY2015) mainly attributable to the following:-

(i)    Provision for onerous contracts
The dry bulk market continues to be weak and it is uncertain when the market will recover. The Group has reviewed its non-cancellable operating lease contracts for the chartered-in vessels and based on a preliminary assessment, the charter-in costs are higher than the current and likely market rates. Hence a provision for onerous contracts has to be made.

(ii)    Provision for impairment of investment in associate, PACC Offshore Services Holdings Ltd (POSH)
The current depressed state of crude oil prices has had an adverse impact on the global offshore marine industry in which POSH operates in. The Group carried out a preliminary assessment of its investment in POSH and is of the view that the fair value of the investment in POSH is likely to be lower than the carrying value and an impairment loss provision has to be made. While the amount of the impairment is yet to be determined, it is expected that this will have a significant adverse impact on the financial results of the Group for 4Q2015 and FY2015.

Today Maybulks share price fell by 10 cent (14%). That sounds logical given the above profit warning, but is in fact a bit strange:
  • The dry bulk index has fallen to new lows, that is public information, it is not a stretch of the imagination that it would lead to further losses for Maybulk, as it had done already for the first three quarters;
  • Maybulks associate POSH is a public traded company, the share price has fallen drastically since its IPO to a new low of SGD 0.29. Maybulk had announced already that it would consider impairing the investment, something that was in my opinion a long time overdue

I have been extremely negative about Maybulks investment in POSH since the moment it was announced in 2008. I fought it tooth and nail, to no avail, in the Malaysian context no surprise.

Unfortunately, it looks like I have been proven right in my assessment.

Investing ca. 800 million cold hard cash during the depth of the global recession in a related company with a negative NTA, but "magically" valued at billions of RM, and continuing to pile additional cash in that company just to be able to call it an associate is apparently not such a good idea after all.

Lesson learned for the minority investors of Maybulk, a very expensive lesson.

Apart from it being a bad investment, there is also a long list of corporate governance issues (some of them rather serious) regarding Maybulk and its acquisition of POSH.

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