Mitrabahtera Segara Sejati, In Line But Facing a Challenging Year

Mitrabahtera Segara’s 1Q14 earnings hit USD9m (-7.9% q-o-q; -11.5% y-o-y), or 24% of our FY14 net profit estimate. We see it facing a challenging year as we see no signs of a structural recovery in the coal sector. We applaud management’s efforts to maintain survivability in the coal support industry. We maintain our NEUTRAL call and IDR1,000 TP. We see no earnings growth this year, yet it remains a dividend play.

1Q14 highlights
Mitrabahtera Segara Sejati (Mitrabahtera Segara)’s 1Q14 revenue declined 2.1% q-o-q, dragged down mainly by its floating crane (FC) segment. However, gross margin improved to 38.7% vs 37.0% in 4Q13, partly on lower employee-/crew-related costs as part of its operational efficiency attempts. 1Q14 opex spiked 70.1% q-o-q, mainly dragged by large general and administrative (G&A) employee costs that impacted operating margin to 29.5% in 1Q14 from 4Q13’s 31.7%.

Flat total barging and FC volumes
Mitrabahtera Segara’s 1Q14 barging segment volume declined 8.9% q-o-q to 9.2m tonnes while the FC business’ volume increased 15.4% q-o-q to 6.0m tonnes. 1Q14 barging average rates increased 9.4% q-o-q to USD3.00/tonne while FC segment average rates declined 18.9% q-o-q. 1Q14 barging and FC revenue reached USD28m (-0.3% q-o-q) and USD11m (-6.4% q-o-q) respectively.

Outlook
Mitrabahtera Segara’s 1Q14 cash position stood at USD46m, arising from a positive operating cash flow with barely any expansion capex allocated since the start of 2013 to 1Q14. This was because it was caught in the coal industry’s downturn cycle. In order to have upside risk for growth, Mitrabahtera Segara has undertaken strategic initiatives to optimise its fleet utilisation by: i) allocating the fleet to projects that contribute better profitability, ii) managing a third party’s fleet, and iii) area operation diversification and better fleet maintenance scheduling. Hence, we estimate capex of around USD30m for this year.

Maintain NEUTRAL
Mitrabahtera Segara is trading at a cheap 4-3.9x 2014-15 P/E with a 7.5% 2014 dividend yield. Despite the cheap valuation, it is hard to justify a positive call if the short- and long-term growth factors are not in place.