Archive for » September 30th, 2013«

Typhoon sinks three boats, leaves 74 missing

AFP – Getty Images

Emergency personnel work to secure fishing boats parked in a harbor on Yongxing island, in south China’s Hainan province, on Sunday.

BANGKOK — Seventy-four Chinese fishermen were missing on Monday after a typhoon sunk three fishing boats in the South China Sea as Thailand and Vietnam braced for torrential rain and flooding.

The ships were hit by Typhoon Wutip on Sunday as they navigated gales near the Paracel Islands, about 205 miles from China’s island province of Hainan, state news agency Xinhua said, citing sources with the Hainan maritime search and rescue center.

Rescuers had rescued 14 survivors, the sources said. The boats were sailing from the southern province of Guangdong.

Rains from the storm are expected to reach Vietnam on Monday before hitting Thailand on Tuesday.

Thai officials warned that more heavy rains could inundate already flood-hit areas of the northeast. At least 22 people have been killed in this year’s flooding.

“We’re expecting more floods,” Teerat Ratanasevi, a government spokesman, told reporters on Monday. “Soldiers have been asked to help evacuate people trapped in flood zones.”

Authorities in central Vietnam have moved children and elderly people to schools and other more solid buildings ahead of the storm.

In the central province of Quang Tri, an estimated 82,000 people would need to be evacuated if Wutip made a direct hit, a government statement said.

Vietnam said heavy rain had been falling in several central provinces while flooding and landslides could strike the region later this week.

Typhoons gather strength from warm sea water and tend to dissipate after making landfall. They frequently hit Taiwan, Japan, the Philippines, Hong Kong and southern China during a typhoon season that lasts from early summer to late autumn.

Sui-Lee Wee reported from Beijing, Amy Sawitta Lefevre from Bangkok, and Ho Binh Minh from Hanoi.

Copyright 2013 Thomson Reuters. Click for restrictions.


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Why Boat-Building’s a Tougher Business Than It Looks

Marine Products (NYSE: MPX  ) ‘s flagship brand Chaparral is the third-largest manufacturer of sterndrive powerboats in the U.S., based on 2012 unit sales. But its leading market share can’t help it avoid the difficulties of operating in an industry with bad economics.

Unattractive business economics

According to Marine Products’ most recent 10-K, there are approximately 70 sterndrive manufacturers in the industry, with the top 10 manufacturers accounting for about 78% of total market share in the 18-to-35-foot sterndrive category, based on 2012 data. This intense competitive rivalry is reflected in the fact that Marine Products has made little headway in increasing its market share over the past decade, with the market share for its Chaparral brand staying range-bound at 7.7%-8.4% from 2002 to 2011.

To make things worse, Marine Products is not solely competing with other boat manufacturers for customers’ dollars. If you have both money and time to spend, you have practically unlimited leisure options. You could splurge your cash on sports cars, or spend a full day enjoying yourself at ski resorts. In addition, consumer demand for boats is highly discretionary, suggesting that people will hold off their purchases if the economy is bad.

Margin downtrend

Marine Products’ fiscal 2012 gross margin of 18.3% is a far cry from the gross margins of 25.9% and 21.5% registered in 2003 and 2007, respectively. This downtrend reflects the key challenges that Marine Products faces.

First, boat manufacturing is a capital-intensive business, demanding a minimum level of sales volume to break even on economies of scale. While Marine Products sold 3,404 boats in fiscal 2012, on par with sales volume in 2008, this 2012 figure is only about half that of the 6,245 boats sold in 2006.

Secondly, the increase in the number of boats it sold — from 2,100 in 2011 to 3,404 in 2012 — is potentially misleading as a sign of market recovery. The company introduced lower-margin entry-level models, which make up a bigger chunk of its sales. In fact, Marine Product’s average unit selling price fell from about $48,000 in 2011 to $41,000 in 2012, partially offsetting any gains in sales volume.

Last but not least, labor and commodity costs are creeping up. Regulations like the Affordable Care Act are adding to the labor cost burden. Also, higher oil prices adversely impact the cost of Marine Products’ petroleum-based raw materials.

Future outlook

Chaparral’s market share of the 18-to-35-foot sterndrive market grew strongly to 13.9% in the first quarter of 2013, which compares favorably with 11.6% for the same period in 2012, and 8.4% for full year 2011. Notwithstanding this, I believe that the market share gain, partially boosted by the introduction of the new, smaller, entry-level Chaparral models in the fourth quarter of 2011, might not be sustainable.

It is not difficult for other premium boat manufacturers to introduce similar cheaper entry-level models. On the other hand, boat manufacturers focused on the entry-level value segment will seek to compete on cheaper prices and better features.

Also, the gain in market share seems to come at the expense of profitability, with Marine Products’ most recent quarterly gross margin falling by 170 basis points year over year to 17.3%. 

Going forward, Marine Products announced in April this year that it’s decided to enter the recreational jet boat market, with its first jet boat models to be introduced within the next 12 months. I see this as an extension of its strategy of targeting new boating customers with more affordable boating options, since jet boats tend to be less expensive than their sterndrive-powered counterparts.

Peer comparison

Marine Products’ peers include Brunswick  (NYSE: BC  ) and MarineMax (NYSE: HZO  ) .

Brunswick is a leading manufacturer of recreational products, and its Sea Ray and Bayline are the top two brands in the 18-to-35-foot sterndrive market, with the largest market share based on 2012 unit sales. Brunswick delivered a decent set of results for the second quarter of fiscal 2013, with quarterly revenue and gross margin up by 4% and 60 basis points, respectively. Looking ahead, it has guided for a 4% growth in full year revenue, notwithstanding an uncertain outlook for the U.S. powerboat market.

Unlike Marine Products, Brunswick has diversified beyond its core marine business. Fitness equipment and bowling billiards accounted for 17% and 9% of its fiscal 2012 revenues, respectively. The bright spot for Brunswick continues to be its fitness business, which is riding on the wave of positive health and wellness trends. It has seen significant growth in the sale of fitness machines to its health club and hospitality customers in the most recent quarter.

MarineMax is the largest recreational boat retailer in the U.S. Compared with Marine Products, it exhibited greater margin stability. Excluding the results for fiscal 2009, which were affected by the Global Financial Crisis, MarineMax’s gross margins have remained stable within a narrow range of 24%-25%. Nevertheless, it still suffered losses in three of out of the past ten years, reflecting the difficulty of operating in a cyclical and capital intensive marine industry.

It grew quarterly revenues and core net income before taxes by 16% and 20% for the third quarter of fiscal 2013. MarineMax’s efforts in enhancing promotional activities to meet the challenges of poor weather paid off, with a 16% increase in same store sales. Its balance sheet also remained strong, with the absence of long term debt on its books. With inventory range being a key differentiator in attracting customers, MarineMax’s balance sheet strength will allow it to stock up on the broadest product range available. 

Conclusion

Boat-building is a business with low profitability, given the fragmented nature of the industry and the availability of customer alternatives to recreation boats as a form of leisure. The long-term gross margin downtrend for Marine Products further strengthens my bear case on this stock.

 

 


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Sailing: Two world titles for NZ

Peter Burling and Blair Tuke in action. Photo / Supplied

New Zealand’s Olympic class sailors have pulled off an unprecedented result at the 49er and 49erFX World Championships with two world titles and a silver medal.

Olympic silver medallists Peter Burling and Blair Tuke secured their first ever 49er World title in Marseille, France, with compatriots Marcus Hansen and Josh Porebski behind them in second.

Alex Maloney and Molly Meech made it a New Zealand double by winning the inaugural 49erFX world title.

2013 has been a stellar year for Burling and Tuke who have won the 49er European title, the Red Bull Youth America’s Cup title and now the 49er world title after a ninth and a second placing on the final day of racing.

“We’ve worked hard for this not just over the past year but since we started sailing the 49er together,” Tuke said.

“To do it today it and have the other boys in second place and the girls win their world title makes it extra special.”

New to the Olympic programme for 2016 the 49erFX women’s skiff has attracted a number of accomplished international sailors and for Maloney and Meech to secure the world title is a massive achievement.

The young pair holds the ISAF World number one ranking after top three placings at all the major international regattas they’ve contested in 2013 including gold at ISAF Sailing World Cup Hyeres and a bronze at the 49erFX European Championships in Denmark in June.

Today’s world title puts the icing on the cake for Maloney and Meech who both only recently stepped out of the youth classes.

Like Burling and Tuke, Maloney and Meech went into today’s medal races with the overall lead. Competing in a fleet of ten boats with double points on offer they raced away with a second, a fifth and a fourth to secure the world title by a huge 20 point margin from silver medallists Martine Soffiati Grael and Kahena Kunze of Brazil.


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