Mercator Lines

Mercator Lines: Share price tumbles 18%, after the dry bulk shipping company posted its third consecutive annual loss, as FY15 net loss widened to US$125.4m (FY14: US$22.8m).

Revenue declined 25% to US$56.3m, largely due to a fall in spot/contract rates and unscheduled repairs. Meanwhile, other expenses surged more than 10-fold to US$8.8m, mainly because of allowances for bad debt.

Earnings were also hit by massive impairments of US$63.5m, as the group took on a more prudent approach to estimate the recoverable value of its vessels on the basis of discounted cash flows from expected future earnings using a projected 10 year charter rate, as compared to the historical 10 years charter rate previously used.

In light of the falling freight rates, the group also made a US$18.9m provision for an onerous contract.

Going forward, management guides that the dry bulk shipping industry continue to remain volatile, stressing that the Baltic Dry Index dropped to 602 pts on 31 Mar ’15, as compared to its peak of 11,793 in 2008. The industry is expected to remain challenging due to continued new delivery of vessels and the slowdown in the Chinese economy.

Meanwhile, the financial strength of the company has come under strain, and the group has appointed an independent financial advisor to assist with an assessment of its financial position and to advice on options available.

At the current price, Mercator trades at 0.18x P/B, with a high net gearing of 0.94x and weak current ratio of 0.43x.