The worst is not over for the dry bulk and oil tanker markets, which have been facing the heaviest oversupply pressures, as freight rates remain volatile, Malaysian Bulk Carriers Bhd (Maybulk) CEO Kuok Khoon Kuan said.
But the weakness offers an opportunity to acquire vessels.
"We're seeing the (dry bulk and oil tanker) markets becoming increasingly difficult. That's why you see so many shipping companies (around the world) getting into financial difficulties. It is not as if the worst is behind us," he told reporters after the company's annual general meeting here yesterday.
He said the markets still face a host of challenges such as a slowing global economy and the sovereign debt crisis in the eurozone.
As such, Kuok expects Maybulk's shipping margins to continue to stay under pressure in the near term and does not discount the possibility of the company falling into the red if the market deteriorates.
Its net profit for the financial year ended Dec 31, 2011 (FY11) dropped 62% to RM91.3 million from RM238.4 million in FY10, while revenue fell 37% to RM256.3 million from RM404.3 million.
"Anything is possible. We saw for a time when (freight) rates were below operational expenditure (opex), but now they have moved up. But if the rates continue to drop, and nobody knows whether that can be avoided, obviously it is going to be tough (to maintain profitability)," said Kuok.
"However, we have anticipated in a way this ultimate downturn when we started selling off our ships at very good prices fast," he added.
Maybulk had last year sold two dry bulk carriers aged 27 and 28 years, and ordered four new dry bulk carriers which will be delivered this year and the next. This will bring its fleet size to 19 vessels —16 dry bulk carriers and three tankers — with an average age of 5.9 years.
Nevertheless, the company sees a silver lining in the current volatile dry bulk and oil tanker markets: an opportunity to acquire new vessels.
"This to us is a golden opportunity when the markets retreat, to start rebuilding our fleet again (both dry bulk carriers and tankers)... It is a matter of pricing when we think it is a good time to acquire the vessel(s). If we see something that offers a good value, we will go in," said Kuok.
He added that Maybulk has not set aside a particular amount of funds for the acquisitions, nor fix the number of vessels it is looking to buy.
As of Dec 31, 2011, the group's cash reserves stood at RM298.9 million and liquid assets in the form of equity investments at RM121.7 million. Its bank borrowings totalled RM156.4 million.