Price (01 Aug 13, HK$) 4.27
TP (prev. TP HK$) 5.00 (5.00)
● Pacific Basin (PB) reported pre-ex NPAT of US$9.4 mn (when currency-adjusted) in 1H13, matching our US$9.5 mn estimate, but ahead of last year’s US$6 mn loss and consensus expectation of a US$16 mn loss. Reported NPAT of US$0.3 mn compared with last year’s loss of US$196 mn.
● While towage contributions were lower on account of FX translation and new project start-up costs, dry bulk earnings (predominantly handymax) exceeded expectations despite slightly lower freight rates than anticipated as charter-in costs continued to decline.
● While not expecting any major developments in rates for 2H13, management guided towards improvements in 4Q13 and expectations of a firm pick up in 2014. For this reason, it spent US$227 mn on new vessels in 1H13 to optimally position PB as rates recover.
● We see no reason to change our US$93 mn and US$181 mn estimates for 2013 and 2014, respectively, nor to change our OUTPERFORM rating. Our target price of HK$5.00 is based on a P/B of 0.9x, which we consider well supported by the company’s fleet value.
Second highside surprise in a row
This is the second reporting period in which PB has outperformed market expectations—and on this occasion it did so without the towage division contributing beyond expectations.
Revenue lagged our expectations on account of fewer-than-expected revenue days and marginally lower rates, especially in the handysize division. Revenue days were ahead 24% on last year nonetheless, but rates fell 12% vs our 8.5% expectation—although at a 32% premium to the benchmark. Handymax revenue days increased by 30% but rates were down 14%. This resulted in a flat overall contribution to NPAT from the handysize division, but handymaxes displayed a US$6 mn turnaround on account of lower charter in costs (divisional daily opex fell 14% primarily because of this).
PB Towage recorded a lower contribution on account of a weaker AU$ (which lowered the translation of profits into US$), as well as start-up costs associated with the new harbour towage business in Newcastle and wind-down costs of its Gladstone operations. Newcastle is expected to be a significant contributor, although this is unlikely before 2014.
PB ended the half with net debt:assets of 29%, featuring net borrowings of US$415 mn. This was after spending US$227 mn on eight handysize and five handymax vessels, as well as progress payments on another 12 (most of which were Japanese-built). The company has placed orders for six more vessels with Japanese yards, with management revealing that all purchases since September 2012 are “in the money”.
While still needing to absorb some excess capacity, the global handysize fleet is unlikely to grow at all in 2013 and could even shrink in the next 12 months, while demand for the minor bulks continues to grow at >5%. PB has coverage for 64% of its contracted handysize days at only US$100/day more than 1H13 and 60% of its contracted handymax days at US$500/day less, but additional charter-in days as well as those from recent and continuing acquisitions will free up a pool of capacity that should benefit from a 4Q improvement. Having screwed down its costs, PB has skewed its significant operating leverage to the upside. Charter-in costs are unlikely to decline further, but this represents the sounder market in which it is operating. No dividend was recommended for 1H, but management expects to pay one for the full year, should results retain their current trajectory. The 13% rise in the value of a five-year handy size vessel in the last six months is market corroboration of PB’s strategy as well as the rosier outlook for the dry bulk shipping segment.
Source/Extract/Excerpts/来源/转贴/摘录: Credit Suisse
Publish date: 02/08/13