Source of opportunity
We upgrade Pacific Basin to Buy from Neutral, and add the stock to our Conviction List (CL), given:
(1) Sector leading returns: We expect steady recovery of the dry bulk market to drive ROE from 3% in 2013E to 7%-8% by 2015E-16E. We forecast Pacific Basin to garner sector leading CROCI of 12% over 2014E-16E vs. sector average of 8% helped by its roll-on/roll-off (RoRo) vessels disposal.
(2) Favorable rates outlook for its core Handy fleet: Pacific Basin focuses on the Handy segment of dry bulk vessels (operates 280 Handy vessels) where we expect average rates to improve 15%/9%/10% over 2014E/15E/16E with a lower % of orderbook vs. larger vessel types.
(3) Timing of capex cycle: With the RoRo disposal behind us, we believe Pacific Basin’s vessel acquisitions at the trough of market, acquiring 27 dry bulk ships and the long-term chartering of another 9 in the first six months of 2013, should contribute to its above-peer returns profile over the next few years as rates improve.
(4) Low cost advantage: We expect its low cost fleet (with breakeven rates of c.US$8,000/day for Handysizes vs. current spot at US$8,600/day) to continue to drive sector leading returns vs. peers. We lower our 2013E-15E EPS to US$0.02/0.04/0.05 from US$0.03/0.05/0.07 due to our revised BDI forecasts. We also introduce 2016E EPS of US$0.06.
FY2013 results to outperform its peers; recovery in Handy freight rates over 2014E-16E.
We lift our EV/GCI-based 12-month target price from HK$4.60 to HK$6.40, reflecting our earnings estimate revisions, and as we roll forward our valuation to 2014E EV/GCI (from 2013E EV/GCI) underpinned by 2014E-15E CROCI of 11.7% (from 2013E-14E CROCI of 10.8%).
Prolonged dry bulk downturn due to weak supply or emergence of new orders; and overcapacity at the Panamax segment cannibalizing the smaller Handy segment.
Source/Extract/Excerpts/来源/转贴/摘录: Goldman Sachs
Publish date: 21/10/13