Pacific Basin Shipping
Towage and RoRo assets for free
Pacific Basin’s (PB) 1H13results missed expectations, with core net profit only 21% of our full-year forecastas we had likely over-estimated the ability of the spot markets in 2H13 to make up for the weak 1H.Hence, we revise down rates and reduce EPS forecasts.
We lower our SOP-based target price on the back of the earnings cuts. Still, we keep our Outperform call as the share price implies no value attached to its towage and RoRo assets. Catalysts include a gradual 2H13 rate recovery as newbuilding deliveries taper off. Pacific Basin (PB) has positioned well for the recovery by rapidly buying attractive vessels.
Highlights of 1H13
PB’s core net profit rose 16% yoy from a low base. Although PB’s average dry bulk TCE rates dropped 11% yoy on the back of a weak market, it was offset by an aggressive 25% yoy build-up in capacity and a 12% drop in vessel operating costs as cheaper charters took the place of expired expensive ones. PB also exploited the cheap charter market by rapidly expanding its number of short-term chartered ships to do more profitable business. As usual, PB’s TCE rates outperformed the market by 28-32% during 1H13 as PB milked its global network of cargo interests and end customers to keep ship utilisation high and secure backhaul cargoes. No interim dividend was declared, similar to last year.
Towage business healthy
Towage earnings fell 20% as a contract was renewed at a lower rate and the contract business is generally lumpy. But the outlook remains bright, with PB Towage bidding for the Gorgon, Wheatstone and Ichthys LNG projects in Australia.
Timely vessel purchases
In Sep-Dec 2012, PB purchased seven secondhand ships and accelerated the process in 2013 by buying 18 secondhand vessels YTD (including the exercise of purchase options on 10 chartered ships). These purchases coincided with the lowest point in ship prices in the post-crisis period. PB has further room to buy as its end-June net gearing of 0.3x is still below its self-imposed limit of 0.5x. All of PB’s ship purchases are of high-quality Japanese tonnage.
Publish date: 02/08/13