The persevering workhorse
The stockcontinues to trade at an undeserved discount to its underlying fleet value, despite a strong balance sheet and improving prospects. Investors cannot go wrong with a company that has never made a loss on its core bulk shipping business.
Under our new rating structure, our previous Outperform call becomes an Add. We retain our earnings forecasts and target price, still based on SOP valuation. Re-rating catalysts are expected from rising bulk ship values and a gradual recovery in bulk freight rates.
PB has been able to keep its core dry bulk business profitable since the GFC. As usual, its 1H13 time charter equivalent (TCE) rates outperformed the market average by 28-32%, while its 3Q13 handysize rates were 27% above spot Baltic Exchange rates. This superior performance was achieved by milking PB’s global network of cargo interests and end-customers to keep ship utilisation high and secure backhaul cargoes. Its fleet of mostly high-quality Japanese-built ships is also fuel-efficient.
PB has also been exploiting the cheap charter market by rapidly expanding its short-term chartered fleet to tap profitable business.
Timely vessel purchases
PB has been aggressive in asset acquisitions, which are generally well-timed with low ship prices. Its owned and finance-leased fleet is expected to rise from 50 ships as at 1 January 2013 to 74 ships as at 31 December 2013, and further to 87 ships by end-2016. With a strong balance sheet and low gearing, it will find it relatively easy to fund its acquisitions with debt. It recently waded back into the newbuilding market, by signing contracts to buy seven new handysize and handymax ships for delivery in 2014-16. PB can afford to buy more ships as its end-June net gearing of 0.3x was still below its self-imposed limit of 0.5x.
We believe that the global dry bulk fleet will grow 4.9% yoy in 2014, marginally higher than the 4.6% growth in demand expected, and spot rates should generally be stable. But rates should rise more convincingly in 2015, when the average fleet may grow only 2.2%. However, PB is more aggressively expecting demand to rise 7% next year, which would support our call on the stock even more.