Mitrabahtera Segara Sejati, Defensive Play Against Coal Market Gloom

Company Profile
MBSS is a one-stop provider of sea-based coal transport with comprehensive services involving shore-based storage, barge loading, river and sea-based transport to offshore loading of ocean-going vessels. Its source of income is derived from barging (69% of revenue as of 1Q13) and floating crane (31% of revenue as of 1Q13) segments. Its barging contract ranges from one to seven years while its transshipment contract terms are mostly five years.

More than 95% of its revenue is tied to long-term contracts. Around 80% of its contracts are on a freight rate basis with agreed rate/tonne and minimum guaranteed volume. MBSS’ long-term contract clients are well-known companies including Adaro, KPC, Kideco, ITMG Banpu, Holcim and Indocement with operations in South Kalimantan, East Kalimantan and Java.

Highlights
Defensive against external coal mining shocks. Among the coal mining and coal supporting companies, MBSS is considered one of the most defensive players against the external negative coal outlook which has been hurting the industry. In a backdrop of rising fuel prices, MBSS is able to pass on the high fuel cost to its freight rate. This has kept the company’s gross margin at 40% consistently.

Potential tenders in 2H13
Although capex is at its minimum for 2013, we believe MBSS could still book a 15% earnings growth this year, driven by revenue recognition from its vessel acquisitions in late 2012. Should the coal outlook pick up, the company is poised for further earnings growth. In addition, we believe there will be some potential tenders in 2H13, which are outside our 15% earnings growth forecast. Should MBSS win any of these tenders, we project for capex allocation for the company this year and further earnings growth in 2014.

Healthy balance sheet
Backed by its strong receivables and working capital management, MBSS had a strong cash position of USD21m as at 1Q13 and a low net gearing of 41%. Should the company manage to secure any potential projects or a coal turnaround occur, MBSS would not be worried about its financial capacity to expand given its healthy balance sheet.