Friday, October 25, 2013

Pacific Basin : Source of opportunity (GS)

Pacific Basin (2343 HK, Buy, on Conviction List)

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%).

Key risks
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

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