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January 30, 2012
REGIONAL
MALAYSIA
DRY BULK SHIPPING SHORT TERM (3 MTH) LONG TERM
SINGAPORE
INDONESIA
THAILAND
CHINA, HONG KONG Conviction
Notes from the Field
A long dry season ahead
The weak global outlook and slowing growth in China will ensure that
dry bulk demand stays suppressed. This is in contrast to the dry bulk
fleet which is in for another year of record deliveries. Rates are likely
to continue sliding before recovering slightly in 2014.
Figure 1: Baltic Dry Indices - long-term view
Raymond Yap Kok Hoe CFA
T (60) 3 20849769
E raymond.yap@cimb.com 20,000
Baltic Capesize Index
Baltic Panamax Index
For information please contact Calvin Yew at 15,000 Baltic Supramax Index
(60) 3 20849964 or calvin.yew@cimb.com Baltic Handysize Index
10,000
“2012 has long been
expected to be a difficult 5,000
year because of the
volume of new ships 0
expected to be delivered. M MJJAS DJF A AS N F AMJJ O F A
JF A
03
ON M MJJ O DJ M
04 05
AS NDJ M MJJAS DJF A AS N F A AS N F AMJJAS DJF A
06
ON M MJJ O DJ M MJJ O DJ M
07 08 09
ON M MJJAS DJF A AS N
ON M MJJ O DJ
10 11 12
Surging ship deliveries is SOURCES: CIMB, BLOOMBERG
sinking the fortunes of dry
bulk shipping firms.”
We maintain our Underweight sector
Record fleet deliveries
─ Paragon Shipping call. Our top pick is Pacific Basin on
2012 will see another round of
its extremely cheap valuations. Our
record vessel deliveries, leading to an
top sell is STXPO as it is expected to
average fleet growth of 13.2% which
be unprofitable. We have cut EPS by
will worsen the oversupply situation.
up to 40%, though we raise forecasts
The current order book still stands at
for PSL. Maybulk has been
a substantial one-third of global fleet
Highlighted Companies downgraded from N to UP.
despite last year’s record
Pacific Basin newbuilding deliveries. We do not
Pacific Basin’s share price appears to have China’s waning appetite for expect a huge volume of demolitions
reflected the negatives as it is trading at a massive
47% discount to SOP. At the current price, zero
iron ore in 2012 given the relatively young fleet. The
value has been assigned to its dry bulk fleet which Bulk demand growth is expected to growing global supply of ships will
has an average age of just 7½ years. slow down from 4.5% in 2011 to 3.9% keep demand for bunker fuel high.
Precious Shipping in 2012 as China’s iron ore imports High bunker costs will eat into bulk
We do not expect PSL to offer investors excitement decline. For the first time in a decade, companies’ profits.
in the immediate term. But it has enough firepower
to purchase more than 20 secondhand ships in a
property starts in China are expected
declining market, which would enable it to reap the to decline due to the tightening A recovery only in 2014
rewards in the next upcycle. measures imposed by the The demand-supply imbalance is set
Maybulk government in 2011 and investors’ to last at least until 2013. Even a
Maybulk is unlikely to be able to cover the loss of pessimism on the property sector. recovery in 2014 is uncertain if
earnings from the expired money-spinning Tenaga
contract. This, plus the deteriorating fundamentals
China’s steel production has been global growth continues to stagnate.
of the dry bulk market, underpins our expectations declining since mid-2011 while iron For 2012, supply growth is projected
of an earnings decline in the coming years. ore stockpiles are at a peak. Away to outweigh demand growth by
STX Pan Ocean from China, world economic growth nearly 3x. Our revised BDI forecasts
STXPO is expected to incur losses in 2011 and is expected to slow, which is likely to are 1,228 points for 2012 (-20.8%
beyond. It is also the most heavily geared and has
a substantial portfolio of vessels acquired at high result in lower demand for bulk yoy), 1,099 (-10.5%) for 2013 and
pre-GFC prices. We expect the share price to halve commodities. 1,154 (+5%) for 2014.
as pressure mounts.
IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
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DRY BULK SHIPPING
January 30, 2012
KEY CHARTS
High bunker price eating into earnings
In contrast to the low freight rates, the bunker fuel price is 800
Singapore Bunker Fuel (US$/MT) - LHS
14,000
close to its 2008 peak. Fortunately, most bulk companies 700
Baltic Dry Index - RHS
12,000
are still profitable, albeit earning thin margins. However, if 10,000
rates continue to fall, some bulk operators may not be able 600
to cover daily operating expenses. 500
8,000
6,000
400
4,000
300 2,000
200 0
O
J FMAMJ JASONDJ FMAMJJASONDJ FMAMJ JASONDJ FMAMJ JAS NDJ FMAMJ JASONDJ
07 08 09 10 11 12
China property new starts to decline in 2012
For the first time in a decade, China property starts are 2,000 50%
Total property new starts (m sq m)
expected to decline by around 10%, after growing at a 1,800
Growth rate (%) 40%
10-year compounded rate of 17.7%. This has major negative 1,600
implications for steel production and consequently, the 1,400 30%
demand for iron ore and coking coal imports, which could 1,200
20%
1,000
further depress freight rates. 10%
800
600 0%
400
-10%
200
0 -20%
99 00 01 02 03 04 05 06 07 08 09 10 11 12F
Bulk fleet has doubled in six years
The bulk fleet has grown to nearly 600m dwt currently 900
Bulk fleet (m DWT) Bulk orderbook (m DWT)
from just 300m dwt at the start of the 2005. Based on the 800
current outstanding order book and assuming no further 700
orders, the bulk fleet could grow an additional 200m dwt 600
over the next 2-3 years. Newbuilding deliveries from orders 500
placed back in the boom years of 2007-08 have caused the 400
current oversupply situation. 300
200
100
0
2005 2007 2009 2011
Second-hand vessel prices far off its peak
Bulk vessel values continued their descent in 2011 as freight 160
Capesize - 170,000 dwt
rates weakened. Vessel prices are now 58-75% below their Panamax - 73,000 dwt
peak in 2007-08 after falling by another 10-24% in 2011 120
Handymax - 45,000 dwt
Handysize - 25-30,000 dwt
alone. The bigger price declines are seen in the larger
segment vessels such as the capesize and panamax as they 80
have seen the greatest rate volatility.
40
0
J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J
05 06 07 08 09 10 11 12
SOURCE: CIMB, COMPANY REPORTS
2
DRY BULK SHIPPING
January 30, 2012
Figure 2: Sector Comparisons
Price Target Price Market Cap Core P/E (x) 3-year EPS P/BV (x) Recurring ROE (%) EV/EBITDA (x) Dividend Yield (%)
Company Bloomberg Ticker Recom.
(local curr) (local curr) (US$ m) CY2011 CY2012 CAGR (%) CY2011 CY2012 CY2011 CY2012 CY2013 CY2011 CY2012 CY2011 CY2012
Malaysian Bulk Carriers MBC MK Underperform RM2.65 RM1.62 871 26.6 36.5 -30.6% 1.54 1.54 5.9% 4.3% 3.8% 15.9 23.7 2.6% 2.6%
Pacific Basin Shipping 2343 HK Outperform HK$3.60 HK$5.45 899 16.9 21.9 -25.5% 0.57 0.57 3.4% 2.6% 3.2% 5.4 5.8 1.6% 2.3%
Precious Shipping PSL TB Neutral THB16.40 THB17.00 547 34.4 28.4 17.7% 1.00 0.97 3.0% 3.5% 6.2% 10.9 13.2 2.6% 2.5%
STX Pan Ocean STX SP Underperform S$7.67 S$3.75 1,260 na na -266.5% 0.63 0.68 -9.4% -7.5% -9.7% na 166.7 0.0% 0.0%
Thoresen Thai TTA TB Not Rated THB21.40 - 488 29.2 23.6 18.8% 0.51 0.52 1.7% 2.2% 3.6% 9.2 7.4 1.9% 1.9%
China COSCO 1919 HK Not Rated HK$4.48 - 7,599 -6.7 -22.2 -34.4% 0.9 1.0 -11.6% -4.5% 4.8% na 38.5 0.0% 0.2%
China Shipping Devt 1138 HK Not Rated HK$5.32 - 2,997 14.0 11.4 7.6% 0.6 0.6 4.9% 5.8% 8.0% 13.7 11.9 2.2% 2.6%
Sinotrans Shipping 368 HK Not Rated HK$2.03 - 1,045 10.1 9.5 1.6% 0.48 0.46 4.8% 4.9% 5.8% 1.3 0.9 3.4% 3.8%
Sincere Navigation 2605 TT Not Rated TWD26.00 - 496 8.1 8.2 -4.5% 1.02 0.98 13.3% 12.2% 11.4% 5.1 4.7 7.6% 6.9%
U-Ming Marine 2606 TT Not Rated TWD44.65 - 1,286 15.5 18.3 -28.0% 1.47 1.49 9.2% 8.1% 9.0% 8.6 9.9 4.7% 4.0%
Dry bulk group na 94.8 -24.9% 0.88 0.88 -2.8% 0.5% 4.4% 29.6 17.6 1.2% 1.2%
China Shipping Container 2866 HK Underperform HK$1.80 HK$1.20 4,215 na na -193.8% 0.65 0.73 -9.8% -12.3% -14.6% na na 0.0% 0.0%
Neptune Orient Lines NOL SP Underperform S$1.32 S$0.87 2,722 na na -204.4% 0.94 1.09 -11.0% -14.8% -23.2% 78.7 87.8 0.0% 0.0%
Orient Overseas Intl Ltd 316 HK Neutral HK$42.05 HK$33.80 3,392 31.6 64.8 -79.0% 0.81 0.81 2.2% 1.2% 0.2% 8.9 10.1 0.9% 0.4%
SITC International 1308 HK Outperform HK$2.12 HK$2.55 709 8.5 8.9 -10.9% 1.11 1.03 13.5% 12.0% 12.1% 3.3 4.5 4.1% 3.9%
Evergreen 2603 TT Not Rated TWD16.30 - 1,900 na 149.3 -31.1% 0.89 0.89 -0.8% 0.6% 7.1% 24.3 13.8 0.7% 0.5%
Wan Hai 2615 TT Not Rated TWD15.10 - 1,124 33.0 18.9 -22.9% 1.12 1.11 3.3% 5.9% 7.8% 7.4 6.3 0.8% 1.4%
Yang Ming 2609 TT Not Rated TWD12.25 - 1,159 na na -41.6% 0.99 1.04 -17.7% -9.4% 6.4% 754.0 17.8 2.0% 0.0%
AP Moller-Maersk MAERSKA DC Not Rated DKK38,440 - 30,751 12.9 12.5 -11.7% 0.9 0.8 7.7% 7.2% 9.4% 3.3 3.5 1.9% 1.9%
Container group 15.5 16.7 -29.4% 0.84 0.82 3.6% 3.4% 5.5% 4.4 4.7 1.0% 0.9%
MISC Bhd MISC MK Underperform RM5.96 RM5.48 8,743 62.3 27.3 -0.9% 1.30 1.30 2.0% 4.8% 5.7% 24.9 18.7 4.2% 4.2%
Teekay Corp TK US Not Rated US$27.02 - 1,941 na na na 1.31 1.31 -26.0% -3.1% 0.3% 10.7 8.5 4.7% 4.7%
Frontline FRO US Not Rated US$5.16 - 402 na na -162.7% 0.88 1.22 -42.9% -20.7% -13.2% 13.0 13.1 3.1% 0.5%
Tsakos Energy TNP US Not Rated US$6.56 - 302 na na -17.3% 0.32 0.34 -5.0% -4.0% 1.4% 16.2 13.5 9.1% 8.1%
Overseas Shipholding OSG US Not Rated US$12.98 - 395 na na na 0.26 0.30 -12.5% -12.3% -4.4% 71.0 32.5 10.3% 6.8%
Teekay Tankers TNK US Not Rated US$4.61 - 279 23.9 153.7 -17.9% 0.6 0.6 -1.7% 0.7% 2.0% 9.6 11.1 16.7% 12.9%
Berlian Laju Tanker BLTA IJ Not Rated Rp196.00 - 252 2.1 na na 0.24 0.27 13.9% -5.6% -0.6% 8.6 7.3 0.0% 0.0%
Odfjell ODF NO Not Rated Nok40.40 - 601 -21.4 18.0 na 0.5 0.6 30.5% 2.7% 6.3% 9.8 7.6 1.8% 4.0%
Stolt-Nielsen SNI NO Not Rated Nok129.00 - 1,426 13.0 12.6 14.1% 0.85 0.82 6.8% 6.6% 9.2% 9.0 7.9 4.6% 4.5%
Teekay Offshore TOO US Not Rated US$29.43 - 1,848 na 18.0 13.1% 2.97 2.66 -5.8% 15.5% 15.6% 9.7 8.7 6.7% 7.2%
Tanker group na 95.0 38.4% 1.01 1.03 -2.1% 1.1% 4.1% 13.9 11.5 4.8% 4.7%
Kawasaki Kisen Kaisha 9107 JP Not Rated ¥144 - 1,437 3.5 na -178.9% 0.37 0.42 10.5% -12.5% -5.6% 4.9 44.1 6.2% 0.0%
Mitsui OSK Lines 9104 JP Not Rated ¥291 - 4,577 6.3 na -41.0% 0.56 0.53 8.3% -1.8% 1.7% 5.1 15.6 3.3% 1.3%
Nippon Yusen KK 9101 JP Not Rated ¥195 - 4,323 4.7 na na 0.51 0.51 10.6% -3.4% 0.9% 5.1 13.1 5.1% 1.7%
Hyundai Merchant Marine 011200 KS Not Rated Won28,750 - 3,667 na na na 2.02 2.24 -21.8% -10.0% 2.4% 515.2 25.6 0.7% 0.9%
Diversified group 8.4 na -59.2% 0.62 0.63 7.2% -4.8% 0.3% 6.2 17.4 3.5% 1.2%
Average (all) 26.9 74.5 -27.2% 0.85 0.85 2.2% 0.8% 4.1% 6.9 8.3 2.0% 1.6%
SOURCES: CIMB, COMPANY REPORTS
Calculations are performed using EFA™ Monthly Interpolated Annualisation and Aggregation algorithms to December year ends
3
DRY BULK SHIPPING
January 30, 2012
Table of Contents
1. REVIEW OF 2011
2. OUTLOOK
3. RISKS
p.4
p.12
p.18
A long dry season ahead
4. FINANCIALS p.18
5. VALUATION AND RECOMMENDATIONS p.19
1. REVIEW OF 2011
1.1 Bulk rates fell 36-52% in 2011
The BDI fell 44% in 2011, from an average of 2,753 to 1,550 points. The rates for
capesize vessels saw the largest decline of 52% due to massive fleet deliveries
during the year and the impact of several catastrophes. Panamax rates were not
spared either, plunging by 44% due to the floods in Australia which slashed coal
exports and Japanese tsunami that damaged a major coal import port.
Notes from the Field
At the start of the year, floods in Queensland disrupted coal exports which
dented demand for bulk carriers due to the lack of cargoes. Queensland is the
“2012 has long been main supplier of the world’s seaborne coking coal exports. As the year
expected to be a difficult progressed and the water receded, exports gradually resumed. Then in March,
year because of the volume Japan was struck by an earthquake and then a tsunami. The event triggered a
of new ships expected to be number of shutdowns of nuclear power stations in Japan. Both capesize and
panamax rates declined as it was apparent that Japan’s imports will fall in the
delivered. Surging ship coming months and it will take time before reconstruction efforts begin.
deliveries is sinking the
fortunes of dry bulk From early August, capesize rates started to rally but rates for the small vessel
segments did not similarly benefit. The capesize rally was caused by several
shipping firms.” factors 1) strong iron ore restocking by Chinese steel mills, 2) resumption of
─ Paragon Shipping Australia’s coal exports, and 3) rising coal and iron ore imports by Japan. Rates
dipped in late October but rallied further in November and December as iron
ore prices sank sharply, which encouraged Chinese mills to restock despite weak
demand for steel. Capesize rates ended 2011 at US$27,500/day, higher than the
year’s average. Rates for the other the vessel segments ended the year lower.
Figure 3: Change in average BDI index and earnings (US$/day) for dry bulk vessels
BDI Capesize Panamax Supramax Handysize
Index US$/day US$/day US$/day US$/day
Avg 2010 2,753 32,875 24,858 22,359 16,384
Avg 2011 1,550 15,836 13,940 14,351 10,505
Change (%) -44% -52% -44% -36% -36%
SOURCES: CIMB, CLARKSON RESEARCH SERVICES
Figure 4: Baltic Dry, Capesize and Panamax Indices Figure 5: Baltic Supramax and Handysize Indices
10,000 5000 3,500 Title: 2,000
Baltic Capesize Index
Source: Baltic Supramax Index (LHS)
Baltic Panamax Index 4500
3,000 Baltic Handysize Index (RHS) 1,750
Baltic Dry Index (RHS)
8,000 4000 Please fill in the values above to have them entered in your report
1,500
3500 2,500
1,250
6,000 3000
2,000
2500 1,000
1,500
4,000 2000
750
1500 1,000
500
2,000 1000
500 250
500
0 0 0 0
J F M A M J J A S O N D J F M A M J J A S O N D J F MA M J J A S O N D J J FMA M J J A S O ND J FMA M J J A S O ND J FMA M J J A S O ND J
09 10 11 12 09 10 11 12
SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG
4
DRY BULK SHIPPING
January 30, 2012
Figure 6: Baltic capesize and panamax TCE/day (US$/day) Figure 7: Baltic supramax and handysize TCE/day (US$/day)
90,000 35,000 Title:
Baltic Capesize TCE/day Source: Baltic Supramax TCE/day
80,000
Baltic Panamax TCE/day 30,000 Baltic Handysize TCE/day
Please fill in the values above to have them entered in your report
70,000
25,000
60,000
50,000 20,000
40,000 15,000
30,000
10,000
20,000
5,000
10,000
0 0
J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J J F MAMJ J A S O N D J FMA M J J A S O N D J F MA M J J A SO N D J
09 10 11 12 09 10 11 12
SOURCES: CIMB, CLARKSON RESEARCH SERVICES SOURCES: CIMB, CLARKSON RESEARCH SERVICES
1.2 Share price performance of bulk companies in 2011
Our Underweight recommendation on the bulk sector was spot on for 2011 as
none of the Asian bulk shipping companies that we track posted positive share
price returns during 2011. The best performer was Precious Shipping, which
recorded an 8% decline in share price. Precious Shipping has a strong balance
sheet and is ready to acquire cheap secondhand vessels that will position it well
in the longer term. The worst performer was China Cosco (1919 HK, Not Rated)
with a share price decline of 53% as the company has a large fleet of ships
chartered in at very expensive and unprofitable rates.
Our top pick for the sector in 2011, Pacific Basin (2343 HK, Outperform), was a
disappointment as its share price performance declined 37%. Despite its cheap
valuations and strong balance sheet, investors remain wary of the stock due to
the cyclical nature of bulk shipping companies. Precious Shipping (PSL TB,
Neutral) declined the least, matching the performance of the SET.
Our negative view on STX Pan Ocean (STX SP, Underperform) proved correct
as its share price fell a massive 49%, much more than the 17% decline of the
Straits Times Index. The company is exposed to all three underperforming
shipping sectors – bulk, tanker and container shipping. For Maybulk (MBC MK,
Underperform), we started the year with an Underperform rating but upgraded
it in May due to better-than-expected 1Q11 results. After our mid-year review of
the bulk sector in September, we reverted to an Underperform for the stock.
Maybulk’s price fell from RM1.70 to a low of RM1.39. We upgraded the stock
again to a Neutral on 9 December when it was below our target price. Since
early January, Maybulk’s share price has surged to a high of RM2.65 on
speculation that it will be taken private. In this report, we downgrade the stock
again to an Underperform as management has denied the speculation and we
think that the recent share price rally is not aligned with its fundamentals.
5
DRY BULK SHIPPING
January 30, 2012
Figure 8: Bulk stocks' share price performance for 2011
0%
-10% -8%
-20%
-23% -22%
-30%
-32%
-34%
-40% -37%
-43%
-50% -49%
-53% -52%
-60%
China CSD STX Pan Maybulk Pacific Sinotrans Average U-Ming Sincere PSL
Cosco Ocean Basin Shipping Marine Navigation
SOURCES: CIMB, BLOOMBERG
1.3 Very modest seaborne demand growth in 2011
Based on Clarkson’s estimates, overall seaborne bulk trade volumes grew by
4.5% in 2011 (+158mmt). This was sharply slower than 2010’s growth of 12%
(+363mmt) and below the 2001-10 average growth of 6% p.a. 2010 had
benefited from a strong recovery in European and Japanese/South Korean
imports of iron ore and coking coal, after a steep drop in 2009. Thermal coal
imports had risen sharply in 2010 for Japan, South Korea, India and China. As a
result of the higher 2010 base, demand growth in 2011 was materially slower.
Iron ore which accounts for 28% of total seaborne trade turned in reasonable
growth of 5.8% in 2011, driven by demand from China. Minor bulks also grew
5.5%, the main constituent being steel products (279 mmt, +6.9% yoy), forest
products (178 mmt, +4.1% yoy), agribulks (126 mmt, +5.9% yoy) and scrap (104
mmt, +5.1% yoy).
Figure 9: Proportion of dry bulk trade in 2011 (%) Figure 10: Dry bulk seaborne trade (mmt) and growth (%) for
2011
1,400 Title: 8.0%
+5.5%
Others +5.8% Source:
+5.4%
24% Iron ore 1,200 6.0%
28% Please fill in the values above to have them entered in your report
+2.3% 4.0%
1,000
2.0%
800
0.0%
Forest products Steam coal
5% 19% 600
-2.0%
Steel products
8% 400
-4.0%
-5.5%
Grains
10% Coking Coal 200 -6.0%
6%
0 -8.0%
Iron ore Steam coal Coking coal Grains Minor bulks
SOURCES: CIMB, CLARKSON RESEARCH SERVICES SOURCES: CIMB, CLARKSON RESEARCH SERVICES
6
DRY BULK SHIPPING
January 30, 2012
1.4 Iron ore remains in the driving seat
Good demand for iron ore continues to support bulk shipping rates, mainly for
the capesize vessels. The biggest importer is still China, accounting for nearly
63% of global seaborne iron ore imports. Reversing a 1.5% contraction in 2010,
Chinese iron ore imports rose a healthy 11%, fuelled by a 9.4% yoy increase in
Chinese steel production in 2011. The steep drop in iron ore prices in November
and December 2011 also caused a surge in Chinese iron ore imports as Chinese
steel mills took the opportunity to increase their purchases.
Despite China’s contribution to growth, the growth pace of global iron ore
seaborne imports dropped from 10.6% in 2010 to 5.8% in 2011. The main
reason for this is slower growth of Japanese and European imports of iron ore
as a result of the Japan tsunami and a slowdown in the EU economies. While
Japan saw a strong rebound in iron ore imports during July and August 2011,
this increase was short-lived as imports fell in the following months.
Reconstruction activities have started but progress is slow. The global economic
slowdown, debt woes in Europe and the strengthening yen have dampened the
recovery process.
From a supply perspective, iron ore exports from India have fallen sharply
following the ban imposed by the state of Karnataka in July 2010. The ban was
lifted in April 2011 but a further inquiry by the Supreme Court delayed the
lifting to November. The mines are expected to be reopened in January 2012 but
the rise in export duties for iron ore fines and lumps to 30% since early 2012 is
set to curb foreign iron ore trade. Lloyd’s List estimates that the drop in iron ore
exports from India represents a loss of 50 supramax cargoes every month.
Fortunately, China’s continuous appetite for thermal coal has supported
demand for supramax vessels on the Indonesia-China route.
Figure 11: China's iron ore imports (mmt) Figure 12: Domestic iron ore production in China (mmt)
60% 80 50% Title: 140
Yoy (%) China iron ore imports (mmt) Yoy (%) Domestic iron ore production in China (mmt)
Source:
130
50% 40%
70 in
Please fill in the values above to have them entered120 your report
40%
30% 110
60
30%
100
20%
20% 50 90
10%
80
10%
40
0% 70
0%
60
30
-10% -10%
50
-20% 20 -20% 40
J FMA M J JA S OND J FMA M J JA S OND J FMAM J JA S OND J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D
09 10 11 09 10 11
SOURCES: CIMB, CEIC SOURCES: CIMB, CEIC
7
DRY BULK SHIPPING
January 30, 2012
Figure 13: China domestic iron ore prices versus spot prices in India
220
India imports 63.5%spot cfr (US$/MT) 7%
China domestic 66%incl. 1 VAT
200
180
160
140
120
100
80
60
40
J FMAM J JA SO NDJ FMAM J J A SO NDJ FMA MJ J ASOND J FMAMJ J A SOND J FMA MJ JASO ND J FMA MJ J A SOND J
06 07 08 09 10 11 12
SOURCES: CIMB, BLOOMBERG
Figure 14: Japan iron ore imports (mmt) Figure 15: India iron ore exports to China (mmt)
30% 13 50% Title: 16
Yoy (%) Iron ore imports - Japan (mmt) Source: Yoy (%)
25% 40%
14
20% 12 30%
India iron
to have to China (mmt)
Please fill in the values aboveore exports them entered in your report
12
15% 20%
10
10% 11 10%
5% 0% 8
0% 10 -10%
6
-5% -20%
4
-10% 9 -30%
2
-15% -40%
-20% 8 -50% 0
J F M A M J J A S O N D J F M A M J J A S O N D J FMA M J JA S OND J FMA M J JA S OND J FMAM J JA S OND
10 11 09 10 11
SOURCES: CIMB, CEIC SOURCES: CIMB, BLOOMBERG
1.5 Coal trade choked off by floods
Overall, coal trade expanded by a very modest 2.5% in 2011, led by a 5.4%
growth in steam coal, offset by a 5.5% decline in coking coal. This performance
compares poorly to the 15% growth in total seaborne coal trade in 2010, led by a
25% rise in coking coal and 11.7% expansion in thermal coal trades.
Coking exports from Australia were severely affected by the Queensland floods
in early 2011 but from 3Q11 onwards, there was a marked improvement in
Australia’s export volumes. Still, it was not sufficient to help place full-year
coking coal exports in positive growth territory. Australia has, after all, 60%
market share of the world’s coking coal exports, the majority of which is mined
in Queensland.
The constrained supply of coking coal due to the Queensland floods also caused
a surge in prices which deterred many price-sensitive buyers. Because of this
and the slower global economy, global ex-China steel production growth
gradually declined throughout 2011, lowering coking coal demand as well. Due
to the catastrophes that Japan suffered, many industries were temporarily shut
down which affected demand for coking coal. As reconstruction efforts started
and infrastructure/plants were restored, the demand for coking coal slowly
returned.
8
DRY BULK SHIPPING
January 30, 2012
For the steam coal trade, OECD Europe is the largest importer (18%), followed
by Japan (16.6%), South Korea (13.6%) and China (13%). The strong trade
growth was surprisingly driven by OECD Europe, with a 10% volume expansion
mainly from the UK. The UK imported 8.4m mt more steam coal in 2011 (+49%
yoy), primarily from the US due to discounted US prices as a result of its high
sulphur content. Coal purchases by the UK have accelerated as British power
stations typically use desulphurisation technology.
However, the growth in the seaborne steam coal trade also slowed in 2011 vs.
2010, mainly due to a slower pace of increase in imports by China and South
Korea, and a small decline in Japan’s imports as a result of the tsunami which
had damaged major coal import ports in the Tohoku region.
Figure 16: Total coal exports by Australia
30%
Yoy (%) Coal exports - Australia (Mt) 28
20% 26
24
10%
22
0%
20
-10% 18
16
-20%
14
-30% 12
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N
09 10 11
SOURCES: CIMB, BLOOMBERG
Figure 17: Japan coal imports Figure 18: China coal imports
40% 18 100% Title: 25
Yoy (%) Source: Yoy (%)
80% China's coal imports (mmt)
30% Coal imports - Japan (mmt) 17
Please fill in the values above to have them entered in your report
20
20% 16 60%
10% 15 40%
15
0% 14 20%
10
-10% 13 0%
-20% 12 -20%
5
-30% 11 -40%
-40% 10 -60% 0
J FMA M J JA S OND J FMA M J JA S OND J FMAM J JA S OND J F MA M J J A SO ND J FMA M J J A SO N D J FMA M J J A S ON
09 10 11 09 10 11
SOURCES: CIMB, CEIC SOURCES: CIMB, BLOOMBERG
9
DRY BULK SHIPPING
January 30, 2012
Figure 19: Japan crude steel production (mmt) Figure 20: Global ex-China crude steel production (mmt)
30% 10 40% Title: 75
Source:
30% 70
20% Please fill in the values above to have them entered in your report
9
20%
65
10%
10%
8
60
0% 0%
55
7
-10%
-10%
50
-20%
6
-20%
-30% Yoy (%) Global crude steel production - ex China (mmt) 45
Yoy (%) Crude steel production - Japan (mmt)
-30% 5 -40% 40
J FMA M J JA S OND J FMA M J JA S OND J FMAM J JA S OND J FMA M J JA S OND J FMA M J JA S OND J FMAM J JA S OND
09 10 11 09 10 11
SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG
1.6 Highest deliveries in history
The bulk carrier fleet grew by a staggering 75.1m dwt or 14% in 2011 to end the
year at 611.1m dwt. It grew by a similar 77.6m dwt (16.9% yoy) in 2010, despite a
materially slower pace of cargo demand growth in 2011. It is no wonder that
freight rates weakened considerably over the past 12 months.
Last year, the dry bulk market saw record deliveries of 95.9m dwt, 47% of which
consisted of capesize vessels. The capesize fleet rose by a staggering 17.5%.
Scrapping hit a record of 22.2m dwt, effectively removing 4.1% of the January
2011 fleet but still nowhere near enough to offset the 95.9m dwt of new
deliveries.
The record deliveries came despite a 28% delivery slippage based on the order
book at the start of 2011. The highest slippage rate was seen in the handysize
segment. Nearly 45% of planned handysize deliveries did not materialise in 2011
as the majority of the orders were placed by smaller shipping companies which
may have been unable to secure financing. The actual slippage statistic is
probably not as high as the numbers indicated above as some deliveries may not
have been reported to Clarkson Research yet.
The current order book accounts for 33% of the bulk fleet, down from a peak of
80% in October 2008, with the capesize orders accounting for 36% of the
existing capesize fleet and 40% for the panamax segment. There were very few
new vessel orders during 2011 as financing was tight and optimism among
shipowners deteriorated as rates continued to plunge. Still, we expect the pace
of ship supply growth to exceed cargo demand growth until 2013.
10
DRY BULK SHIPPING
January 30, 2012
Figure 21: Bulk fleet and order book (m dwt) Figure 22: Order book versus current fleet (m dwt) by vessel
type
900 90% 300 Title:
Bulk fleet (m DWT) Source:
Orderbook Current fleet
800 Bulk orderbook (m DWT) 80% 36%
Percentage of fleet (%) 250 Please fill in the values above % obook of fleetentered in your report
to have them
700 70%
600 60% 200
40%
500 50%
150 28%
400 40%
300 30% 100
21%
200 20%
50
100 10%
0 0% -
2005 2007 2009 2011 Capesize Panamax Supramax Handysize
SOURCES: CIMB, CLARKSON RESEARCH SERVICES SOURCES: CIMB, CLARKSON RESEARCH SERVICES
Figure 23: Demolitions (m dwt) by vessel type and quarterly BDI
9.0 Handysize 4,000
Handymax
8.0 Panamax 3,500
Capesize
7.0 Average BDI - RHS 3,000
6.0
2,500
5.0
2,000
4.0
`
1,500
3.0
1,000
2.0
1.0 500
0.0 0
1Q 09 2Q 3Q 4Q 1Q 10 2Q 3Q 4Q 1Q 11 2Q 3Q 4Q
SOURCES: CIMB, CLARKSON RESEARCH SERVICES
Figure 24: Newbuilding contracts by vessel type (m dwt)
200
capesize panamax handymax handysize
180
160
140
120
100
80
60
40
20
0
2005 2006 2007 2008 2009 2010 2011
SOURCES: CIMB, CLARKSON RESEARCH SERVICES
11
DRY BULK SHIPPING
January 30, 2012
1.7 Secondhand vessel prices fell 58-75% from 2007-08
peak
As freight rates deteriorated, the demand for and pricing of secondhand vessels
continued to decline. The current freight rates offer thin margins (or even slight
losses) and the poor earnings prospects have dissuaded owners from investing
in these older vessels. During 2011, secondhand values have fallen 10-24% on
average, with the capesize and panamax values down the most. Newbuilding
prices also dropped in 2011 as the unexciting dry bulk fundamentals and tight
financing deterred new orders.
Figure 25: Newbuilding vessel prices (US$ m) Figure 26: Second-hand vessel prices – 5-year olds (US$ m)
Panamax - 73,000 dw t Handymax - 45,000 dw t
45 90 45 Title: 65
Panamax 75-77k dw t Handymax 56-58k dw t Handysize - 25-30,000 dw t
Source: Capesize - 170,000 dw t (RHS)
Handysize 25-30k dw t Capesize 176-180k dw t - RHS 80
60
Please fill in the values above to have them entered in your report
40 40
70
60 55
35 35
50
50
40
30 30
30 45
20 25
25
40
10
20 0 20 35
J F MA M J J A S O N D J F M A M J J A S O N D J F MA M J J A S O N D J J M M J S N J M M J S N J M M J S N
09 10 11 12 09 10 11
SOURCES: CIMB, CLARKSON RESEARCH SERVICES SOURCES: CIMB, CLARKSON RESEARCH SERVICES
Figure 27: Changes in secondhand vessel prices – 5-year olds (US$ m)
Capesize Panamax Handymax Handysize
Current price (US$ m) 38 28 26 23
Peak price pre-GFC (US$ m) 154 92 75 54
Peaked in Jul-08 Nov-07 Nov-07 Jun-08
Change, % -75% -70% -66% -58%
Peak price post-GFC (US$ m) 62 41 34 28
Peaked in Mar-10 May-10 Sep-10 Jun-10
Change, % -39% -33% -24% -20%
January 2011 (US$ m) 50 36 30 25
Change, % -24% -24% -15% -10%
SOURCES: CIMB, CLARKSON RESEARCH SERVICES
2. OUTLOOK
2.1 Dry bulk demand growth to moderate
We are anticipating dry bulk trade growth to slow down in 2012 to 3.9%, slightly
lower than 2011’s 4.5% growth. This is a downward revision of our earlier
forecast of 5.2% as the recent slowdown in global economies will drag down
global trade. Clarkson is expecting only 3.1% growth for 2012.
China accounts for the majority (63%) of global iron ore imports. The property
sector makes up a third of China’s steel demand and the outlook for this sector
could heavily affect iron ore demand. Typically, the property sector is very
dependent upon the economy. Based on our in-house forecast, China’s GDP is
still expected to expand by 8% in 2012, a slowdown from the 8.9% GDP growth
during 2011.
12
DRY BULK SHIPPING
January 30, 2012
For 2012, China’s property sector is not expected to do well, especially in the
first half. Our property analyst, Johnson Hu believes that overall property sales
volume for 2012 will be flat compared with 4% growth in 2011. In addition, he
expects property starts to decline by 10% in 2012, which may also reduce steel
and cement demand growth. The forecast decline is supported by several factors
including weaker housing starts in recent months, the slowdown in growth of
real estate investment and the falling real estate investment climate index.
We have lowered our iron ore import growth assumption from an initial 7% to
4% for 2012. As global economies wrestle with slower growth, steel production
in the world including China has already shown signs of growth weakness in
2H11. We expect 2012 to fare worse. Chinese steel production reached its peak
in April 2011 and has been on the decline since May 2011. Production in
November registered a 0.6% yoy decline, the first decline since April 2009. This
is probably a result of policy tightening measures implemented by the Chinese
government to slow growth and the fragile global economic conditions.
Furthermore, iron ore inventories at China’s ports are currently at very high
levels.
However, there may be a tentative stabilisation in 2H12 as our analyst believes
that there could be some relaxation of the government policies that have held
back property sales. Typically, the correction in China’s property prices lasts for
a year. While it is likely that China’s appetite for iron ore in 2012 could decrease
due to the property slowdown, China’s economy is still expected to grow by
high-single digit levels over the next few years. The immense infrastructure and
housing development projects will continue to sustain iron ore demand from the
world’s second-largest economy. Johnson expects the property sector
environment in China to improve in 2013, with sales volume potentially growing
10-20%.
Figure 28: China’s property sales (m sq m) Figure 29: China housing starts (m sq m)
Property sales yoy% (LHS)
80% 200 100% Title: Housing Start yoy%(LHS) 200
Property sales (sqm mil)
Source:
70% 180 Housing Start (sqm mil)
180
80% Please fill in the values above to have them entered in your report
60% 160
160
50% 140
60%
140
40% 120
30% 100 40% 120
20% 80
100
20%
10% 60
80
0% 40
0%
60
-10% 20
-20% 0 -20% 40
J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D
09 10 11 09 10 11
SOURCES: CIMB, NSB SOURCES: CIMB, NSB
13
DRY BULK SHIPPING
January 30, 2012
Figure 30: Real estate investment (Rmb bn) Figure 31: China’s real estate climate index
40%
Yoy (%) Real estate investment - ytd (Rmb bn)
7,000 2.5% Title: 108
Source: Mom (%) Real estate climate index
35% 2.0% 106
6,000
in
Please fill in the values above to have them entered104 your report
1.5%
30%
5,000
102
1.0%
25%
100
4,000
0.5%
20% 98
3,000 0.0%
96
15%
-0.5%
2,000 94
10%
-1.0%
92
5% 1,000
-1.5% 90
0% 0 -2.0% 88
J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D
09 10 11 09 10 11
SOURCES: CIMB, NSB SOURCES: CIMB, NSB
Figure 32: China's crude steel production (mmt) Figure 33: China ports iron ore inventories (mmt)
40% 65 100 Title:
Yoy (%) China crude steel production (mmt) China ports iron ore inventories (mmt)
Source:
95
60
30% 90 Please fill in the values above to have them entered in your report
55
85
20% 80
50
75
45
10% 70
40 65
0% 60
35
55
-10% 30 50
J FMA M J JA S OND J FMA M J JA S OND J FMAM J JA S OND J F MA M J J A S O N D J F MA M J J A S O N D J FMA M J J A S O N D J
09 10 11 09 10 11 12
SOURCES: CIMB, BLOOMBERG SOURCES: CIMB, BLOOMBERG
For both steam and coking coal seaborne cargo demand, we are expecting 5%
growth in 2012. As Australia’s coal production is almost back to its pre-floods
level, the higher levels of supply should moderate coal prices, which could, in
turn, attract more buyers. Steam coal demand will be supported by China’s and
India’s growing economies, with Clarkson forecasting trade growth of 8.7% and
16.8%, respectively for 2012. Also, Japan is likely to increase its steam coal
imports for power generation purposes as nuclear plants remain offline and
their viability is still uncertain.
Japan’s post-tsunami rebuilding will also drive growth in 2012 for iron ore,
coking coal and timber. Reconstruction activity in Japan may start picking up in
March. Although progress has been slower than expected due to global
headwinds, the Japanese government finally approved a ¥9.2tr (US$120bn)
budget for reconstruction in November 2011. The reconstruction spending may
boost housing starts significantly over the next couple of years.
For the grain trade, Russian exports have resumed following the 10-month ban
that was lifted in June 2011. According to Clarkson, Russia’s wheat exports for
July-September 2011 reached a record 8.6 mmt, an increase of 72% yoy. The
resumption of exports is good news for handysize vessels. Overall, we project
total bulk demand growth of 3.9% for 2012, 4.2% for 2013 and 4.5% for 2014.
14
DRY BULK SHIPPING
January 30, 2012
Figure 34: Dry bulk trade volume (mmt)
2010 2011 2012F 2013F 2014F
Trade (m tonnes) mmt yoy % mmt yoy % mmt yoy % mmt yoy % mmt yoy %
Iron ore 995 10.6% 1,053 5.8% 1,095 4.0% 1,150 5.0% 1,219 6.0%
Coking coal 235 25.0% 222 -5.5% 233 5.0% 245 5.0% 257 5.0%
Steam coal 669 11.7% 705 5.4% 740 5.0% 777 5.0% 816 5.0%
Grain 342 7.9% 350 2.3% 361 3.0% 372 3.0% 383 3.0%
Minor bulk (incl. alumina/bauxite/phosphate) 1,251 11.2% 1,320 5.5% 1,364 3.3% 1,408 3.3% 1,454 3.3%
Bulk demand 3,492 11.6% 3,650 4.5% 3,793 3.9% 3,952 4.2% 4,129 4.5%
Trade growth (m mt) mmt yoy % mmt yoy % mmt yoy % mmt yoy % mmt yoy %
Iron ore +95 10.6% +58 5.8% +42 4.0% +55 5.0% +69 6.0%
Coking coal +47 25.0% -13 -5.5% +11 5.0% +12 5.0% +12 5.0%
Steam coal +70 11.7% +36 5.4% +35 5.0% +37 5.0% +39 5.0%
Grain +25 7.9% +8 2.3% +11 3.0% +11 3.0% +11 3.0%
Minor bulk (incl. alumina/bauxite/phosphate) +126 11.2% +69 5.5% +44 3.3% +45 3.3% +46 3.3%
Bulk demand growth +363 11.6% +158 4.5% +143 3.9% +159 4.2% +177 4.5%
Proportion of trade
Iron ore 28.5% 28.8% 28.9% 29.1% 29.5%
Coking coal 6.7% 6.1% 6.1% 6.2% 6.2%
Steam coal 19.2% 19.3% 19.5% 19.7% 19.8%
Grain 9.8% 9.6% 9.5% 9.4% 9.3%
Minor bulk 35.8% 36.2% 36.0% 35.6% 35.2%
SOURCES: CIMB, CLARKSON RESEARCH SERVICES
2.2 Massive fleet expansion
For 2012, we are forecasting the dry bulk fleet to expand by 75.9m dwt (+13.2%
yoy), which is on par with the growth of 75.1m dwt (+15.3%) during 2011. The
still-large order book, at 33% of the current fleet, will ensure a heavy delivery
profile this year, despite our assumption of a 27% slippage rate. We are
expecting scrapping volumes to increase in 2012 due to weaker freight rates
although as a percentage of fleet, the figure remains around 4% as the bulk fleet
has grown in the past year. The heavy newbuilding deliveries will compound the
existing oversupply and force freight rates lower.
We are projecting an average fleet growth of 8.2% in 2013 and 4.1% in 2014.
Although half of the existing order book will be delivered in 2012, some of the
delayed orders from 2011 and 2012 could spill over to 2013. New vessels orders
are likely to be very minimal since freight rates are likely to trend lower and
financing remains scarce as banks tighten their purse strings. We expect
demolitions to slow down as the majority of the older vessels will be scrapped in
2011 and 2012. Our forecast assumes a scrapping rate of 4% in 2012, 2.6% in
2013 and 1.7% in 2014. At end-2011, 58% of the entire global fleet is below 10
years of age and capesize vessels accounted for 40% of the total fleet.
Figure 35: Bulk fleet in December 2011 (m dwt) Figure 36: Bulk fleet in December 2011 (% of fleet)
Age 20+ 15-19 10-14 5-9 0-4 Total Age 20+ 15-19 10-14 5-9 0-4 Total
Capesize 26 37 24 35 121 243 Capesize 11% 15% 10% 14% 50% 100%
Panamax 25 15 28 28 58 154 Panamax 16% 10% 18% 18% 38% 100%
Handymax 18 11 16 23 58 125 Handymax 14% 9% 13% 18% 46% 100%
Handysize 34 6 9 8 26 84 Handysize 41% 8% 11% 10% 31% 100%
Total 102 69 77 93 263 605 Total 17% 11% 13% 15% 43% 100%
SOURCES: CIMB, CLARKSON RESEARCH SERVICES SOURCES: CIMB, CLARKSON RESEARCH SERVICES
NOTE THAT CLARKSON DATA HAVE A SMALL DISCREPANCY OF TOTAL
FLEET OF 605M DWT AT END-2011 AGAINST 611MDWT IN OTHER TABLES
15
DRY BULK SHIPPING
January 30, 2012
Figure 37: Bulk fleet development
TOTAL Bulk Fleet growth (dwt)
No of vessels DWT Year-end Average
End 2008 6,964 417,890,000 6.6% 5.9%
+ 2009 net deliveries 550 43,238,758
- 2009 scrapping -272 -10,558,588
- 2009 conversions 22 7,919,830
End 2009 7,264 458,490,000 9.7% 8.2%
+ 2010 net deliveries 991 80,156,177
- 2010 scrapping -137 -6,401,214
- 2010 conversions 18 3,815,037
End 2010 8,136 536,060,000 16.9% 13.5%
+ 2011 net deliveries 1,147 95,903,483
- 2011 scrapping -362 -22,151,762
- 2011 conversions -31 1,328,279
End 2011 8,890 611,140,000 14.0% 15.3%
+ 2012 gross deliveries 1,657 137,737,833
- 2012 slippage -478 -37,279,522
+ 2012 net deliveries 1,179 100,458,311
- 2012 scrapping -440 -24,550,500
End 2012F 9,629 687,047,811 12.4% 13.2%
+ 2013 gross deliveries 781 66,325,511
- 2013 slippage -218 -17,683,385
+ 2013 net deliveries 563 48,642,126
- 2013 scrapping -318 -18,007,000
End 2013F 9,874 717,682,937 4.5% 8.2%
+ 2014 gross deliveries 428 39,436,467
- 2014 slippage -8 -257,564
+ 2014 net deliveries 420 39,178,903
- 2014 scrapping -211 -12,386,000
End 2014F 10,083 744,475,839 3.7% 4.1%
SOURCES: CIMB, CLARKSON RESEARCH SERVICES
2.3 Potential recovery in 2014?
The fundamentals of the dry bulk sector have deteriorated and even a potential
recovery in 2014 may be at risk. The recovery hinges mainly on China as the
country is a major importer of iron ore and coal which drives most of dry bulk
demand. For 2012, the average fleet growth of 13.2% far exceeds our projected
3.9% demand growth. Even for 2013, the average fleet growth of 8.2% is nearly
double the 4.2% demand growth.
We expect rates to fall by an average of 20.8% in 2012 and 10.5% in 2013. Rates
could rebound in 2014 but even so, the quantum should be very small at around
5% on average. Our BDI forecasts are 1,228 points (-20.8%) for 2012, 1,099
(-10.5%) for 2013 and 1,154 (+5%) for 2014. This is lower than our previous
forecast of 1,255 points for 2012 and 1,219 for 2013. We expect secondhand bulk
vessels values to decline by 20% in 2012 and another 5% in 2013.
Figure 38: Dry bulk TCE rate (US$/day) and BDI forecasts
Capesize Panamax Supramax Handysize Average BDI Index
US$/day Chg (%) US$/day Chg (%) US$/day Chg (%) US$/day Chg (%) US$/day Chg (%) Chg (%)
2008 97,699 -12.3% 48,876 -14.1% 41,113 -13.6% 29,083 -10.9% 54,193 -12.8% 6,353 -10.2%
2009 39,065 -60.0% 19,298 -60.5% 16,946 -58.8% 11,345 -61.0% 21,663 -60.0% 2,602 -59.0%
2010 32,875 -15.8% 24,858 28.8% 22,359 31.9% 16,384 44.4% 24,119 11.3% 2,756 5.9%
2011 15,836 -51.8% 13,940 -43.9% 14,351 -35.8% 10,505 -35.9% 13,658 -43.4% 1,550 -43.8%
2012F 11,877 -25.0% 10,455 -25.0% 11,481 -20.0% 9,455 -10.0% 10,817 -20.8% 1,228 -20.8%
2013F 10,095 -15.0% 8,887 -15.0% 10,103 -12.0% 9,644 2.0% 9,682 -10.5% 1,099 -10.5%
2014F 10,600 5.0% 9,331 5.0% 10,608 5.0% 10,126 5.0% 10,166 5.0% 1,154 5.0%
SOURCES: CIMB, CLARKSON RESEARCH SERVICES
16
DRY BULK SHIPPING
January 30, 2012
Figure 39: Baltic Dry Index forecasts
8,000
7,076
7,000 6,353
6,000
4,505
5,000
4,000 3,378 3,188
2,753
2,639 2,602
3,000
1,145 1,550
2,000
1,228 1,099 1,154
1,000
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
SOURCES: CIMB, BLOOMBERG
Figure 40: Demand-supply balance in the dry bulk sector
2011 2012F 2013F 2014F
Trade (m tonnes) m mt yoy % m mt yoy % m mt yoy % m mt yoy %
Iron ore 1,053 5.8% 1,095 4.0% 1,150 5.0% 1,219 6.0%
Coking coal 222 -5.5% 233 5.0% 245 5.0% 257 5.0%
Steam coal 705 5.4% 740 5.0% 777 5.0% 816 5.0%
Grain 350 2.3% 361 3.0% 372 3.0% 383 3.0%
Minor bulk (incl. alumina/bauxite/phosphate) 1,320 5.5% 1,364 3.3% 1,408 3.3% 1,454 3.3%
Total bulk demand 3,650 4.5% 3,793 3.9% 3,952 4.2% 4,129 4.5%
Fleet at year-end (m dwt) 2011 2012F 2013F 2014F
m dwt yoy % m dwt yoy % m mt yoy % m mt yoy %
Handysize 84.4 3.9% 85.5 1.3% 83.1 -2.8% 82.0 -1.3%
Handymax 126.2 15.7% 142.1 12.6% 150.6 6.0% 154.9 2.9%
Panamax 154.7 13.2% 176.9 14.3% 186.2 5.3% 194.8 4.6%
Capesize 245.8 17.5% 282.6 14.9% 297.7 5.4% 312.7 5.0%
Total fleet 611.1 14.0% 687.0 12.4% 717.7 4.5% 744.5 3.7%
Average fleet capacity (m dwt) 573.6 15.3% 649.1 13.2% 702.4 8.2% 731.1 4.1%
Panamax-vessel equivalent growth 2011 2012F 2013F 2014F
(number of ships)
Demand growth +410 +371 +413 +461
Supply growth +1,151 +1,138 +803 +433
Change in Supply-Demand balance +740 +767 +390 -28
Freight rates weaker… weaker… weaker… flat…
Average BDI index 1,550 1,228 1,099 1,154
Average change in Baltic Dry Index (%) -43.7% -20.8% -10.5% 5.0%
Notes:
1. Supply and demand growth is in terms of Panamax equivalents
2. Demand growth = trade growth converted into Panamax vessels based on: 55,000t cargoes x 6 trips a year
3. Supply growth = net change in bulk fleet divided by 65,000 dwt.
SOURCES: CIMB, CLARKSON RESEARCH SERVICES
Figure 41: Year-end vessel prices (US$ m) and annual change (%)
Year Capesize Panamax Handymax Handysize Increase/(Decrease)
2006 81 46 40 29 41%
2007 150 89 75 44 83%
2008 45 26 25 21 -68%
2009 55 36 27 22 21%
2010 50 36 29 25 0%
2011 36 27 25 21 -23%
2012F 29 21 20 17 -20%
2013F 27 20 19 16 -5%
2014F 27 20 19 16 0%
SOURCES: CIMB, CLARKSON RESEARCH SERVICES
17
DRY BULK SHIPPING
January 30, 2012
2.4 Near-term outlook
While our annual rate forecasts suggest a continued decline in rates over the
next two years, volatility is the hallmark of the dry bulk sector. It is very likely
that freight rates will surge and dip frequently. Currently, the BDI is hovering
around 750 points, close to the December 2008 low of 663 points. Heavy rain
and mudslides have affected Vale’s iron ore production in south eastern Brazil
while cyclone activity in Western Australia affected shipping from the iron ore
ports of BHP Billiton and Rio Tinto. The limited iron ore supply has left capesize
owners scrambling for cargoes and forced them to accept lower and lower rates.
Capesize rates have fallen from the recent peak of US$31,000/day in
mid-October to a rate of just US$6,700/day now, even lower than current
handysize rates of US$7,100/day. Meanwhile, Lunar New Year celebrations will
keep industrial activity in much of Asia muted in late January and early
February. However, we expect rates to rebound from mid-February onwards
when iron output from Brazil is restored and the Chinese come back from their
holidays.
3. RISKS
3.1 Global economies stage a rapid recovery
Our dry bulk demand forecast incorporates an expected slowdown in global
economies as many developed countries struggle with debt woes and budget
cuts. Even developing countries like China and India are likely to experience
slower growth in 2012. However, if the global economy overcomes its problems
swiftly, demand for bulk cargoes could be more than we now expect.
3.2 No slowdown in China
If China’s economy continues to grow as strongly as it did in past decade or if
the Chinese government decides to reverse its monetary tightening measures,
real estate and construction activities will resume strong growth. This could
spur the demand for raw materials, especially iron ore.
3.3 Slower-than-expected fleet growth
We forecast that dry bulk fleet growth will far exceed demand growth. However,
should the fleet expansion fall below our expectations due to
higher-than-expected slippage, more-than-expected demolition or financing
issues, the demand-supply imbalance will improve and freight rates will not be
as low as we now expect.
3.4 Smaller effective fleet from congestions, weather, etc
Congestion at ports or weather-related delays could effectively remove part of
the dry bulk fleet. This could cause temporary spikes in freight rates as effective
supply is crimped.
4. FINANCIALS
4.1 Most bulk companies remain profitable
With the exceptions of STX Pan Ocean and China COSCO, all regional bulk
companies should have remained profitable in 2011. However, there is a steep
fall in earnings from 2010 due to lower freight rates and higher bunker costs.
For 2012, we expect companies’ earnings to remain in the black but profits
should fall further as freight rates are likely to trend lower. The situation for dry
bulk is at least better than for tanker shipping companies, of which nearly all are
loss-making.
18
DRY BULK SHIPPING
January 30, 2012
Figure 42: Consensus net profit (US$ m)
2010 2011F 2012F 2013F
Malaysian Bulk Carriers * 62.4 27.7 20.6 19.4
Pacific Basin Shipping * 104.3 28.8 41.0 50.5
Precious Shipping * 28.5 29.1 30.2 36.4
STX Pan Ocean * 69.9 (139.2) (144.9) (171.2)
Thoresen Thai 20.5 17.1 23.0 35.1
China COSCO 1,194.6 (947.3) (317.9) 337.4
China Shipping Devt 254.4 178.9 223.4 325.4
Sinotrans Shipping 127.5 103.4 109.8 133.6
Sincere Navigation 66.8 61.6 60.0 58.3
U-Ming Marine 212.1 83.2 69.6 79.1
* Based on CIMB's forecasts
SOURCES: CIMB, COMPANY REPORTS
5. VALUATION AND RECOMMENDATION
5.1 Not at the bottom yet
We maintain our Underweight call on the dry bulk sector in view of the
depressed outlook for the next 2-3 years. Bulk demand growth is expected to
slow due to China’s waning demand for iron and the anticipated sluggish global
growth. In contrast, bulk fleet deliveries for 2012 are expected to exceed the
peak deliveries recorded last year. It is very likely that freight rates and vessel
values will trend lower as well.
Our stock valuations are derived from the sum of parts, which incorporate an
expected 20% decline in vessel values during 2012. On top of that, we factor in a
20% discount to SOP to derive our target prices given the likelihood that share
prices will overshoot on the downside. We only make an exception for Precious
Shipping, basing our target price on the undiscounted SOP in view of our
confidence in a strong pace of vessel acquisitions ahead.
Our top pick for the sector is Pacific Basin with a target price of HK$5.45. The
stock is trading at an unjustifiably large discount of 47% to its SOP and the
entire dry bulk fleet has been accorded zero value by the market.
Despite our Underweight rating on the sector, there could be opportunities
during the year to trade the volatility. We think that an opportune time to relook
at the stocks could be sometime during mid-year, just before the Chinese mills
begin their restocking activities for the anticipated stronger property sales in
2H12.
5.2 Maintain Outperform on Pacific Basin
Pacific Basin’s share price appears to have reflected the poor outlook for dry
bulk rates as it is trading at a 47% discount to SOP. At the current price, zero
value has been assigned to its dry bulk fleet which has an average age of just 7½
years. At such an attractive valuation, Pacific Basin could be the target of a
takeover offer although there is no news of this at present. The stock remains an
Outperform despite cuts in our forecasts and target price (20% discount to SOP)
for lower bulk rate and vessel value assumptions.
The market is already well aware of the challenges facing its six RoRo ships and
has reflected losses into forecasts. Investors can take comfort in the fact that (1)
the business is still cash positive as the current spot rate of US$15,000/day is
enough to cover cash operating costs and interest expense (but not
depreciation), and (2) the RoRo asset values have been written down by 19%
and Pacific Basin is confident that no further writedowns will be needed.
19
DRY BULK SHIPPING
January 30, 2012
Figure 43: Pacific Basin's SOP and target price
Value of dry bulk fleet (US$ m) - end-2012F 813.0
Add: Book value of tugs and barges (US$ m) - end-2012F 199.6
Add: Book value of RoRo fleet (US$ m) - end-2012F 355.6
Add: Other fixed assets (US$ m) 5.7
Add: Payments for newbuildings (US$ m) 188.0
Add: Valuation of operating lease earnings (FY13E 4x P/E) 117.4
1,679.3
Add: Net cash/(debt) (US$ m) - end-2012F -128.3
Add: Other net current assets (US$ m) - end-2012F 141.5
Total (US$ m) 1,692.6
No of shares (m) 1,936.6
Per share value (US$) 0.87
Exchange rate (HK$:US$) 7.77
Per share value (HK$) 6.79
Premium/(Discount) (%) -20%
Targe price (HK$) 5.43
SOURCES: CIMB, COMPANY REPORTS
5.3 STX Pan Ocean remains an Underperform
STXPO is the only dry bulk company in our universe that is expected to incur
losses in 2011 and beyond. It is also the most heavily geared and has a
substantial portfolio of vessels acquired at high pre-GFC prices. We expect the
share price to halve as pressure mounts. We retain our Underperform call, raise
our forecast losses for the next three years and slash our target price (still based
on 20% discount to SOP) as we expect secondhand vessel values to correct 20%
this year. The bulk, container and tanker divisions are all expected to be
unprofitable.
We are now forecasting losses for STXPO’s bulk shipping operations in 2012-13
instead of profits. The company requires a BDI of at least 1,500 points to break
even on long-term chartered-in vessels. But we are forecasting a range of just
1,000-1,200 points in 2012-14. As at 30 September 2011, STXPO had a total
chartered-in fleet of 237 vessels, of which 186 are chartered for a duration of
around two months and another 51 vessels are chartered for a remaining
duration of 5½ years. It is the latter that could make life difficult for STXPO in
an extended low-rate environment. The 50 bulkers that it owns similarly require
a BDI level of 1,500-1,800 points to break even.
Figure 44: STX Pan Ocean's SOP and target price
Value of fleet (US$ m) 4,050.8
Add: Net cash / (debt) FY12F (US$ m) -4,031.5
Add: Other net assets FY12F (excluding cash/debt) (US$ m) 724.6
Total (US$ m) 743.9
No of shares - diluted for CB (m) 205.9
Per share value (US$) 3.61
Exchange rate (S$:US$) 1.29
Per share value (S$) 4.66
Premium/(Discount) (%) -20%
Target price (S$) 3.73
SOURCES: CIMB, COMPANY REPORTS
5.4 Stay Neutral on Precious Shipping
We do not expect PSL to offer investors excitement in the immediate term given
the weak dry bulk shipping rates. But PSL has enough firepower to purchase
more than 20 secondhand ships in a declining market, which would enable it to
reap the rewards in the next upcycle. We retain our Neutral call as investors are
likely to focus on the near term. Our target price has been cut for lower
secondhand values though we no longer factor in a 10% discount to SOP. We cut
2011 forecast for weak rates but raise 2013 for more aggressive vessel purchases.
20
DRY BULK SHIPPING
January 30, 2012
PSL has more than US$100m in cash and US$400m in debt facilities for vessel
acquisitions, which is more than enough to finance the 20 secondhand
purchases that we have assumed for 2012-13. This is on top of the 19
outstanding newbuilding orders that PSL is due to receive. This should expand
PSL’s fleet from the current 26 vessels to 65 by 2014. This massive fleet
expansion will drive earnings.
Figure 45: Precious Shipping's SOP and target price
Dry bulk fleet second-hand value (US$ m) - end-2012 283.2
Exchange rate (THB:US$) 31.00
Dry bulk fleet second-hand value (THB m) - end-2012 8,779.2
Add: Value of shipbuilding advances (THB m) - end-2012 10,511.3
Add: Further second-hand vessel acquisitions (THB m) 6,083.1
Add: Net cash/(debt) (THB m) - end-2012 -8,018.2
Add: Other net assets (THB m) - end-2012 361.5
Total (THB m) 17,716.9
No of PSL shares (m) 1,040.0
Per share (THB) 17.04
Premium / (Discount) (%) 0.0%
Derived target price (THB) 17.04
SOURCES: CIMB, COMPANY REPORTS
5.5 Downgrade Maybulk to Underperform
Maybulk is unlikely to be able to cover the loss of earnings from the expired
money-spinning Tenaga contract. This, plus the deteriorating fundamentals of
the dry bulk market, underpins our expectations of a decline in Maybulk’s
earnings to decline in the coming years. We cut our EPS forecasts and
downgrade the stock from Neutral to Underperform as the recent share price
rally is not supported by its fundamentals. Our target price is based on a 20%
discount to SOP. De-rating catalysts include lower-than-expected dividends.
For 2012, Maybulk will be receiving another two leased bulk vessels. Since the
global financial crisis, Maybulk has grown largely via taking commitments for
chartered-in vessels. However, from this year onwards, Maybulk is likely to
purchase ships as asset prices have come off. In December last year, it took a
US$50m loan “in readiness for capital expenditure”. In our earnings model, we
have assumed that Maybulk will purchase two secondhand bulk vessels this
year.
Figure 46: Maybulk's SOP and target price
Bulk Tanker Total
Second-hand fleet value (US$ m) 174.7 42.5 217.2
Exchange rate (RM:US$) 3.09 3.09 3.09
Second-hand fleet value (RM m) 539.7 131.3 671.0
Add: Chartered-in earnings at 4x P/E (RM m) 67.7
Add: Vessel capex (RM m) 214.9
Add: Net cash FY11F (RM m) 62.9
Add: Other net assets FY11F (RM m) 1,004.8
Total (RM m) 2,021.4
No of shares (m) 1,000
Per share RNAV (RM) 2.02
Discount for risk (%) 20.0%
Target price (RM) 1.62
SOURCES: CIMB, COMPANY REPORTS
21
Dry Bulk Shipping HONG KONG
January 30, 2012
Pacific Basin Shipping
2343 HK / 2343.HK
Current HK$3.60 SHORT TERM (3 MTH) LONG TERM
Market Cap Avg Daily Turnover Free Float Target HK$5.45
US$898.7m US$2.04m 100% Previous Target HK$5.80
HK$6,972m HK$15.82m 1,937 m shares Up/downside 51.4%
Convicti
on
CIMB Analyst Entire dry bulk fleet for free
Pacific Basin’s share price appears to have reflected the poor outlook
Raymond Yap CFA
T (60) 3 20849769
for dry bulk rates as it is trading at a 47% discount to SOP. At the
E raymond.yap@cimb.com current price, zero value has been assigned to its dry bulk fleet which
has an average age of just 7½ years.
At such an attractive valuation, ample scope to take on debt and
Pacific Basin could be the target of a capitalise on the falling secondhand
takeover offer although there is no ship values.
Share price info news of this at present. The stock
Share price perf. (%) 1M 3M 12M remains an Outperform despite cuts RoRo challenges known
Relative 8.7 -6.5 -15.2 in our forecasts and target price The market is already well aware of
Absolute 18.8 -2.4 -29.0 (20% discount to SOP) for lower bulk the challenges facing its six RoRo
Major shareholders % held rate and vessel value assumptions. ships and has reflected losses into
Companie de Navigation 11.9 forecasts. Investors can take comfort
JP Morgan Chase 9.8 Steeply discounted in the fact that (1) the business is still
UBS AG 7 Consistent with our sector-wide cash positive as the current spot rate
assumption changes, we have of US$15,000/day is enough to cover
reduced our handysize and cash operating costs and interest
handymax TCE rate assumptions expense (but not depreciation), and
and also assumed that vessel values (2) the RoRo asset values have been
will drop by 20% in 2012 from written down by 19% and Pacific
end-2011 levels. Still, with an SOP of Basin is confident that no further
HK$6.80, Pacific Basin’s share price writedowns will be needed.
assigns no value to its high-quality
and young bulk fleet. This situation Energy and infrastructure
opens up takeover possibilities that business could surprise
could quickly lead to a share price Pacific Basin is bidding for several
rerating. We also expect the bulk Australian LNG projects which could
operations to remain profitable provide additional employment for
throughout our forecast period since some of its 35 tugs. Its contract with
the company is primarily a handysize Gorgon LNG has been extended to
operator and handysize rates should 2014 while the Gladstone LNG is up
be relatively resilient given the small to end-2012 but likely to be extended
order book and aged fleet. too. The building works for the Qatar
Furthermore, Pacific Basin’s net World Cup 2020 may also open up
gearing is only 7.6%, suggesting opportunities in the Middle East.
5.5
Price Close Relative to HSI (RHS)
106 Financial Summary
5.0 101
Dec-09A Dec-10A Dec-11F Dec-12F Dec-13F
4.5 96
4.0 91
Revenue (US$m) 951 1,269 1,236 1,243 1,317
3.5 86 Operating EBITDA (US$m) 181.4 222.0 186.8 176.8 196.6
3.0 81 Net Profit (US$m) 110.3 118.8 28.8 41.0 50.5
2.5
30 76
Vol m
Core EPS (US$) 0.046 0.063 0.027 0.021 0.026
20
Core EPS Growth (79.4%) 36.6% (56.6%) (22.7%) 23.3%
10
FD Core P/E (x) 9.57 7.21 17.97 24.64 19.99
Jan-11 May-11 Aug-11 Nov-11 DPS (US$) 0.030 0.028 0.007 0.011 0.013
Source: Bloomberg
Dividend Yield 6.48% 5.93% 1.61% 2.28% 2.82%
EV/EBITDA (x) 3.54 4.78 5.43 5.80 5.32
52-week share price range P/FCFE (x) NA NA 8.58 46.24 32.25
3.60 Net Gearing (15.7%) 10.8% 7.6% 8.1% 9.3%
2.82 5.16 P/BV (x) 0.61 0.58 0.57 0.57 0.56
Recurring ROE 6.42% 8.13% 3.41% 2.61% 3.17%
5.45
Current Target % Change In Core EPS Estimates (4.2%) (17.9%) (15.5%)
CIMB/consensus EPS (x) 0.88 0.73 0.49
SOURCE: CIMB, COMPANY REPORTS
IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Designed by Eight, Powered by EFA
Pacific Basin Shipping
January 30, 2012
Profit & Loss Balance Sheet
(US$m) Dec-10A Dec-11F Dec-12F Dec-13F (US$m) Dec-10A Dec-11F Dec-12F Dec-13F
Revenue 1,269 1,236 1,243 1,317 Fixed Assets 1,519 1,522 1,556 1,602
Cost Of Sales (1,047) (1,049) (1,066) (1,120) Intangible Assets 25.30 25.30 25.30 25.30
Gross Profit 222.0 186.8 176.8 196.6 Other Long Term Assets 159.9 124.1 122.1 120.1
Total Operating Costs (58.00) (75.11) (84.64) (93.75) Total Non-current Assets 1,704 1,672 1,703 1,747
Operating Profit 164.0 111.6 92.1 102.9 Total Cash And Equivalents 693 783 782 785
Operating EBITDA 222.0 186.8 176.8 196.6 Inventories 39.90 39.44 40.09 42.12
Depreciation And Amortisation (58.00) (75.11) (84.64) (93.75) Accounts Receivable 111.4 108.5 109.2 115.6
Operating EBIT 164.0 111.6 92.1 102.9 Other Current Assets 7.10 7.10 7.10 7.10
Net Interest Income (31.20) (36.64) (37.47) (38.27) Total Current Assets 852 938 938 950
Exchange Gains - - - - Trade Creditors 127.2 125.7 127.8 134.3
Other Income (12.00) (10.00) (10.00) (10.00) Short-term Debt 165.7 165.7 165.7 165.7
Associates' Profit 1.60 (9.80) (2.00) (2.00) Other Current Liabilities 9.10 9.10 9.10 9.10
Profit Before Tax (pre-EI) 122.4 55.2 42.7 52.6 Total Current Liabilities 302.0 300.5 302.6 309.1
Exceptional Items (3.10) (24.20) 0.00 0.00 Total Long-term Debt 693.7 735.6 744.7 768.1
Pre-tax Profit 119.3 31.0 42.7 52.6 Other Liabilities 14.70 14.70 14.70 14.70
Taxation (0.50) (2.21) (1.71) (2.10) Deferred Tax - - - -
Profit After Tax 118.8 28.8 41.0 50.5 Total Non-current Liabilities 708.4 750.3 759.4 782.8
Minority Interests - - - - Shareholders' Equity 1,545 1,559 1,580 1,605
Net Profit 118.8 28.8 41.0 50.5 Minority Interests - - - -
Recurring Net Profit 121.9 53.0 41.0 50.5 Preferred Shareholders Funds
Total Equity 1,545 1,559 1,580 1,605
Cash Flow Key Ratios
(US$m) Dec-10A Dec-11F Dec-12F Dec-13F Dec-10A Dec-11F Dec-12F Dec-13F
Pre-tax Profit 119.3 31.0 42.7 52.6 Revenue Growth 33.5% (2.6%) 0.6% 5.9%
Depreciation And Non-cash Adj. 87.6 121.5 124.1 134.0 Operating EBITDA Growth 22.4% (15.9%) (5.3%) 11.2%
Change In Working Capital (3.30) 1.89 0.78 (2.04) Operating EBITDA Margin 17.5% 15.1% 14.2% 14.9%
Tax Paid (0.50) (2.21) (1.71) (2.10) Net Cash Per Share (US$) (0.09) (0.06) (0.07) (0.08)
Other Operating Cashflow (4.10) 34.20 10.00 10.00 BVPS (US$) 0.80 0.81 0.82 0.83
Cashflow From Operations 199.0 186.4 175.8 192.5 Gross Interest Cover 5.26 2.54 2.03 2.23
Capex (541.0) (159.0) (118.1) (139.8) Tax Rate 0.42% 7.12% 4.00% 4.00%
Disposals Of FAs/subsidiaries 26.00 81.80 0.00 0.00 Net Dividend Payout Ratio 44.7% 50.0% 50.0% 50.0%
Acq. Of Subsidiaries/investments - - - - Accounts Receivables Days 29.05 32.48 32.05 31.16
Other Investing Cashflow 53.00 0.00 0.00 0.00 Inventory Days 12.87 13.81 13.65 13.40
Cash Flow From Investing (462.0) (77.2) (118.1) (139.8) Accounts Payables Days 41.66 44.01 43.52 42.71
Debt Raised/(repaid) (17.20) 41.93 9.11 23.39 ROIC (%) 11.0% 6.1% 5.2% 5.7%
Equity Raised/(Repaid) 0.00 0.00 0.00 0.00 ROCE (%) 6.92% 4.89% 4.04% 4.40%
Dividends Paid (50.00) (14.40) (20.48) (25.25)
Net Cash Interest (29.80) (46.64) (47.47) (48.27)
Other Financing Cashflow - - - -
Cash Flow From Financing (97.00) (19.11) (58.84) (50.14)
Total Cash Generated (360.0) 90.1 (1.1) 2.5
Change In Net Cash (342.8) 48.2 (10.2) (20.8)
Free Cashflow To Equity (310.0) 104.5 19.4 27.8
Key Drivers
Dec-10A Dec-11F Dec-12F Dec-13F
Average Baltic Dry Index 2,756.0 1,550.0 1,228.0 1,099.0
Average Bulk Rate (US$/day) 18,536.5 14,245.0 13,006.2 12,837.4
Bulk Rates (yoy Change %) 15.0% -23.2% -8.7% -1.3%
Capacity (no. Of Calendar Days) 40,520 44,859 46,865 50,303
Bulk Capacity (yoy Change %) 10.3% 10.7% 4.5% 7.3%
Fleet Size (no. Of Vessels) 111.6 123.5 129.0 138.5
No. Of Dry Bulk Ships 112 124 129 139
SOURCE: CIMB, COMPANY REPORTS
23
Dry Bulk Shipping SINGAPORE
January 30, 2012
STX Pan Ocean
STX SP / STXP.SI
Current S$7.67 SHORT TERM (3 MTH) LONG TERM
Market Cap Avg Daily Turnover Free Float Target S$3.75
US$1,260m US$0.01m 40% Previous Target S$6.25
S$1,579m S$0.01m 205.9 m shares Up/downside -51.1%
Convicti
on
CIMB Analyst Under heavy pressure
STXPO is the only dry bulk company in our universe that is expected to
Raymond Yap CFA
T (60) 3 20849769
incur losses in 2011 and beyond. It is also the most heavily geared and
E raymond.yap@cimb.com has a substantial portfolio of vessels acquired at high pre-GFC prices.
We expect the share price to halve as pressure mounts.
We retain our Underperform call, bunker is consumed by ships
raise our forecast losses for the next servicing COA contracts of under one
three years and slash our target price year and these typically do not have
Share price info (still based on 20% discount to SOP) bunker adjustment factors (BAF).
Share price perf. (%) 1M 3M 12M as we expect secondhand vessel While the 25-year Vale COA to ship
Relative 8.0 -5.3 -29.2 values to correct 20% this year. The iron ore from Brazil does have BAF,
Absolute 17.1 -2.9 -38.6 bulk, container and tanker divisions the profit margin of the Vale COA is
Major shareholders % held are all expected to be unprofitable. only single digit. Any unexpected
STX Group 34 increase in bunker cost or delay in
Korea Development Bank 15 Bulk earnings slashed BAF pass-through could quickly eat
We are now forecasting losses for up the margins. STXPO also has a
STXPO’s bulk shipping operations in heavy newbuilding programme that
2012-13 instead of profits. The will cost US$2bn in 2012-14 (70%
company requires a BDI of at least financed), which may push net
1,500 points to break even on gearing close to 300% by 2013 and
long-term chartered-in vessels. But exact a heavy toll in interest expense.
we are forecasting a range of just
1,000-1,200 points in 2012-14. As at Tanker and container also
30 September 2011, STXPO had a facing tough times
total chartered-in fleet of 237 vessels, STXPO chartered in four VLCCs for a
of which 186 are chartered for a remaining period of more than three
duration of around two months and years at a cost of US$40k/day. But
another 51 vessels are chartered for a spot rates averaged only US$20k/
remaining duration of 5½ years. It is day during 2011 and are likely to
the latter that could make life remain low in 2012-14. As global
difficult for STXPO in an extended container liners focus on returning
low-rate environment. The 50 the beleaguered Asia-Europe trade to
bulkers that it owns similarly require profitability, cascading to the Asia-
a BDI level of 1,500-1,800 points to Middle East and the Australasia
break even. High bunker costs may trades could hurt rates in the trades
also be an issue. Two-thirds of that STXPO focuses on.
14
Price Close Relative to FSSTI (RHS)
108 Financial Summary
13 102
12 97 Dec-09A Dec-10A Dec-11F Dec-12F Dec-13F
11 91
10 86
Revenue (US$m) 3,637 5,593 5,448 4,775 4,597
9 80 Operating EBITDA (US$m) (17.6) 173.2 (14.7) 31.0 41.7
8 74
7 69 Net Profit (US$m) (62.2) 69.9 (139.2) (144.9) (171.2)
6
80 63
Vol th
60
Core EPS (US$) (0.52) 0.18 (0.94) (0.70) (0.83)
40 Core EPS Growth (117%) na (622%) (25%) 18%
20
FD Core P/E (x) NA 33.97 NA NA NA
Jan-11 May-11 Aug-11 Nov-11 DPS (US$) 0.075 0.076 - - -
Source: Bloomberg
Dividend Yield 1.22% 1.24% 0.00% 0.00% 0.00%
EV/EBITDA (x) NA 18.2 NA 166.7 141.5
52-week share price range P/FCFE (x) 5.04 NA NA NA NA
7.67 Net Gearing 66% 94% 151% 217% 283%
6.31 12.50
P/BV (x) 0.61 0.59 0.63 0.68 0.75
3.75
Recurring ROE (4.98%) 1.76% (9.38%) (7.55%) (9.71%)
Current Target % Change In Core EPS Estimates 5.3% 42.4% 40.3%
CIMB/consensus EPS (x) 0.00 0.49 (0.00)
SOURCE: CIMB, COMPANY REPORTS
IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Designed by Eight, Powered by EFA
STX Pan Ocean
January 30, 2012
Profit & Loss Balance Sheet
(US$m) Dec-10A Dec-11F Dec-12F Dec-13F (US$m) Dec-10A Dec-11F Dec-12F Dec-13F
Revenue 5,593 5,448 4,775 4,597 Fixed Assets 3,380 4,260 5,137 5,697
Cost Of Sales (5,405) (5,448) (4,732) (4,543) Intangible Assets 23.90 23.90 23.90 23.90
Gross Profit 187.7 (0.1) 43.7 53.9 Other Long Term Assets 121.6 122.6 123.6 124.6
Total Operating Costs (122.3) (129.2) (134.9) (153.0) Total Non-current Assets 3,525 4,406 5,285 5,845
Operating Profit 65.4 (129.3) (91.1) (99.2) Total Cash And Equivalents 554.0 241.2 164.8 127.9
Operating EBITDA 173.2 (14.7) 31.0 41.7 Inventories 41.00 41.32 35.89 34.46
Depreciation And Amortisation (107.8) (114.6) (122.2) (140.8) Accounts Receivable 247.9 241.5 211.7 203.8
Operating EBIT 65.4 (129.3) (91.1) (99.2) Other Current Assets 904.7 904.7 904.7 904.7
Net Interest Income (24.20) (40.29) (62.44) (82.05) Total Current Assets 1,748 1,429 1,317 1,271
Exchange Gains - - - - Trade Creditors 140.6 141.7 123.1 118.2
Other Income 3.10 0.00 0.00 0.00 Short-term Debt 469.3 469.3 700.0 900.0
Associates' Profit (0.70) 1.00 1.00 1.00 Other Current Liabilities 405.1 405.1 405.1 405.1
Profit Before Tax (pre-EI) 43.6 (168.6) (152.6) (180.2) Total Current Liabilities 1,015 1,016 1,228 1,423
Exceptional Items 32.80 54.40 0.00 0.00 Total Long-term Debt 2,096 2,796 3,496 3,986
Pre-tax Profit 76.4 (114.2) (152.6) (180.2) Other Liabilities 30.10 30.10 30.10 30.10
Taxation (6.00) (25.00) 7.63 9.01 Deferred Tax - - - -
Profit After Tax 70.4 (139.2) (144.9) (171.2) Total Non-current Liabilities 2,126 2,826 3,526 4,016
Minority Interests (0.50) 0.00 0.00 0.00 Shareholders' Equity 2,132 1,993 1,848 1,677
Net Profit 69.9 (139.2) (144.9) (171.2) Minority Interests 6.10 6.10 6.10 6.10
Recurring Net Profit 37.1 (193.6) (144.9) (171.2) Preferred Shareholders Funds
Total Equity 2,138 1,999 1,854 1,683
Cash Flow Key Ratios
(US$m) Dec-10A Dec-11F Dec-12F Dec-13F Dec-10A Dec-11F Dec-12F Dec-13F
Pre-tax Profit 76.4 (114.2) (152.6) (180.2) Revenue Growth 53.8% (2.6%) (12.3%) (3.7%)
Depreciation And Non-cash Adj. 132.7 153.9 183.6 221.9 Operating EBITDA Growth N/A (108%) N/A 34%
Change In Working Capital 19.7 7.2 16.6 4.4 Operating EBITDA Margin 3.10% (0.27%) 0.65% 0.91%
Tax Paid (6.00) (25.00) 7.63 9.01 Net Cash Per Share (US$) (9.77) (14.69) (19.58) (23.11)
Other Operating Cashflow (162.4) (8.5) 12.2 8.8 BVPS (US$) 10.36 9.68 8.98 8.15
Cashflow From Operations 60.4 13.4 67.4 63.9 Gross Interest Cover 1.09 (2.02) (1.22) (1.09)
Capex (600.0) (1,000.0) (1,000.0) (700.0) Tax Rate 7.85% 0.00% 0.00% 0.00%
Disposals Of FAs/subsidiaries 134.9 38.0 0.0 0.0 Net Dividend Payout Ratio 22.3% 0.0% 0.0% 0.0%
Acq. Of Subsidiaries/investments - - - - Accounts Receivables Days 14.80 16.39 17.37 16.49
Other Investing Cashflow 296.1 0.0 0.0 0.0 Inventory Days 2.50 2.76 2.99 2.83
Cash Flow From Investing (169.0) (962.0) (1,000.0) (700.0) Accounts Payables Days 9.02 9.46 10.24 9.69
Debt Raised/(repaid) 616 700 931 690 ROIC (%) 1.62% (2.88%) (1.70%) (1.63%)
Equity Raised/(Repaid) - - - - ROCE (%) 2.30% (2.12%) (1.40%) (1.43%)
Dividends Paid (17.90) 0.00 0.00 0.00
Net Cash Interest (513.9) (64.1) (74.6) (90.8)
Other Financing Cashflow - - - -
Cash Flow From Financing 84.4 635.9 856.1 599.2
Total Cash Generated (24.2) (312.8) (76.5) (36.9)
Change In Net Cash (640) (1,013) (1,007) (727)
Free Cashflow To Equity (6.3) (312.8) (76.5) (36.9)
Key Drivers
Dec-10A Dec-11F Dec-12F Dec-13F
Average Baltic Dry Index 2,756.0 1,550.0 1,228.0 1,099.0
Average Bulk Rate (US$/day) 38,353.0 38,000.0 32,300.0 29,070.0
Bulk Rates (yoy Change %) 20.8% -0.9% -15.0% -10.0%
Capacity (no. Of Calendar Days) 127,750 114,063 114,793 121,910
Bulk Capacity (yoy Change %) 30.7% -10.7% 0.6% 6.2%
Fleet Size (no. Of Vessels) 389.0 382.0 399.0 420.0
No. Of Dry Bulk Ships 322 313 326 342
SOURCE: CIMB, COMPANY REPORTS
25
Dry Bulk Shipping MALAYSIA
January 30, 2012
Malaysian Bulk Carriers
MBC MK / MBCB.KL
Current RM2.65 SHORT TERM (3 MTH) LONG TERM
Market Cap Avg Daily Turnover Free Float Target RM1.62
US$870.9m US$0.67m 31% Previous Target RM1.65
RM2,650m RM2.10m 1,000.0 m shares Up/downside -38.9%
Convicti
on
CIMB Analyst A huge void to fill
Maybulk is unlikely to be able to cover the loss of earnings from the
Raymond Yap CFA
T (60) 3 20849769
expired money-spinning Tenaga contract. This, plus the deteriorating
E raymond.yap@cimb.com fundamentals of the dry bulk market, underpins our expectations of a
decline in Maybulk’s earnings to decline in the coming years.
For information please contact Calvin Yew at
(60) 3 20849964 or calvin.yew@cimb.com
We cut our EPS forecasts and expand via long-term leases as it
downgrade the stock from Neutral to held the view that vessel prices will
Underperform as the recent share decline further. This could be the
Share price info price rally is not supported by its year to start acquiring aggressively as
Share price perf. (%) 1M 3M 12M fundamentals. Our target price is tight financing and weaker freight
Relative 85.3 36.1 -3.6 based on a 20% discount to SOP. rates could force many owners to sell
Absolute 86.6 39.5 -4.0 De-rating catalysts include at much cheaper prices. At end-3Q11,
Major shareholders % held lower-than-expected dividends. Maybulk had more than US$100m
Pacific Carriers Ltd. 34.5 cash. Assuming a debt-to-equity
Bank Pembangunan
Malaysia
18.4 Bulk earnings to plummet ratio of 80:20 and based on the
PPB Group Bhd 14 We expect bulk earnings to fall in the current market price of US$20m for
coming quarters due to weaker a five-year old handysize, Maybulk
freight rates and expiry of the Tenaga can comfortably purchase 20 such
contract since mid-2011. The latter vessels, which would more than
was a major reason for the 68% qoq double its operating fleet. The
plunge in Maybulk’s 3Q11 EBIT. As company recently took a US$50m
we expect freight rates to decline, we facility from HSBC for prospective
also cut our FY12-13 EPS forecasts by capex and more financing could
8-25% because the demand-supply follow. Despite this long-term
gap is expected to widen as a result positive, earnings in the next two
of slower global growth. Although we years could remain depressed.
are already factoring in a drop in
DPS from 10 sen in 2010 to 7 sen in Unsustainable price rally
2011-13, even this may be at risk We are unclear why Maybulk’s share
given the current unfavourable price has gone up so much as our
shipping environment. checks with the company suggest
that there is no intention to take it
Right time to buy vessels? private. In the absence of any
Market weakness in 2012 could give information suggesting otherwise,
Maybulk an opportunity to amass our fundamental call remains an
assets at discounted prices. Since the Underperform.
global financial crisis, it has opted to
Price Close Relative to FBMKLCI (RHS)
116 Financial Summary
108
2.7
100 Dec-09A Dec-10A Dec-11F Dec-12F Dec-13F
93
2.2 85 Revenue (RMm) 303.7 404.2 267.8 311.8 370.1
77
1.7
69 Operating EBITDA (RMm) 105.3 206.7 96.9 72.9 71.1
62
54 Net Profit (RMm) 243.8 238.4 100.3 72.6 65.9
1.2
8 46
Vol m
6
Core EPS (RM) 0.17 0.21 0.10 0.07 0.07
4 Core EPS Growth (37.8%) 18.8% (51.4%) (27.1%) (9.3%)
2
FD Core P/E (x) 15.35 12.92 26.59 36.48 40.23
Jan-11 May-11 Aug-11 Nov-11 DPS (RM) 0.15 0.10 0.07 0.07 0.07
Source: Bloomberg
Dividend Yield 5.66% 3.77% 2.64% 2.64% 2.64%
EV/EBITDA (x) 15.60 8.02 15.92 23.25 26.03
52-week share price range P/FCFE (x) 148.9 39.7 17.5 NA NA
2.65 Net Gearing (5.8%) (9.6%) (14.0%) (3.5%) 7.5%
1.39 2.87
P/BV (x) 1.48 1.57 1.54 1.54 1.55
1.62
Recurring ROE 9.4% 11.8% 5.9% 4.2% 3.8%
Current Target % Change In Core EPS Estimates (0.0%) (8.0%) (19.6%)
CIMB/consensus EPS (x) 0.88 0.63 0.48
SOURCE: CIMB, COMPANY REPORTS
IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Designed by Eight, Powered by EFA
Malaysian Bulk Carriers
January 30, 2012
Profit & Loss Balance Sheet
(RMm) Dec-10A Dec-11F Dec-12F Dec-13F (RMm) Dec-10A Dec-11F Dec-12F Dec-13F
Revenue 404.2 267.8 311.8 370.1 Fixed Assets 615.3 532.3 716.0 892.1
Cost Of Sales (197.5) (170.9) (238.8) (299.0) Intangible Assets - - - -
Gross Profit 206.7 96.9 72.9 71.1 Other Long Term Assets 883.0 918.0 953.0 995.5
Total Operating Costs (31.90) (28.69) (31.21) (40.20) Total Non-current Assets 1,498 1,450 1,669 1,888
Operating Profit 174.8 68.2 41.7 30.9 Total Cash And Equivalents 316.7 398.2 306.0 209.1
Operating EBITDA 206.7 96.9 72.9 71.1 Inventories 10.70 9.26 12.94 16.20
Depreciation And Amortisation (31.90) (28.69) (31.21) (40.20) Accounts Receivable 27.20 18.02 20.98 24.91
Operating EBIT 174.8 68.2 41.7 30.9 Other Current Assets 144.4 144.4 144.4 144.4
Net Interest Income 1.70 (0.93) (2.38) (6.22) Total Current Assets 499.0 569.9 484.3 394.6
Exchange Gains - - - - Trade Creditors 104.1 90.1 125.9 157.6
Other Income - - - - Short-term Debt 43.10 43.10 43.10 43.10
Associates' Profit 34.60 35.00 35.00 42.50 Other Current Liabilities 0.60 0.60 0.60 0.60
Profit Before Tax (pre-EI) 211.1 102.3 74.3 67.2 Total Current Liabilities 147.8 133.8 169.6 201.3
Exceptional Items 33.30 0.70 0.00 0.00 Total Long-term Debt 107.0 107.0 200.0 300.0
Pre-tax Profit 244.4 103.0 74.3 67.2 Other Liabilities - - - -
Taxation (1.69) 0.00 0.00 0.00 Deferred Tax - - - -
Profit After Tax 242.7 103.0 74.3 67.2 Total Non-current Liabilities 107.0 107.0 200.0 300.0
Minority Interests (4.30) (2.67) (1.69) (1.32) Shareholders' Equity 1,686 1,716 1,719 1,715
Net Profit 238.4 100.3 72.6 65.9 Minority Interests 56.60 59.27 60.96 62.29
Recurring Net Profit 205.1 99.6 72.6 65.9 Preferred Shareholders Funds
Total Equity 1,742 1,775 1,780 1,777
Cash Flow Key Ratios
(RMm) Dec-10A Dec-11F Dec-12F Dec-13F Dec-10A Dec-11F Dec-12F Dec-13F
Pre-tax Profit 244.4 103.0 74.3 67.2 Revenue Growth 33.1% (33.7%) 16.4% 18.7%
Depreciation And Non-cash Adj. (4.40) (5.38) (1.42) 3.92 Operating EBITDA Growth 96.3% (53.1%) (24.8%) (2.5%)
Change In Working Capital 20.40 (3.42) 29.19 24.53 Operating EBITDA Margin 51.1% 36.2% 23.4% 19.2%
Tax Paid (1.50) 0.00 0.00 0.00 Net Cash Per Share (RM) 0.17 0.25 0.06 (0.13)
Other Operating Cashflow (37.10) (0.70) 0.00 (0.00) BVPS (RM) 1.69 1.72 1.72 1.71
Cashflow From Operations 221.8 93.5 102.1 95.6 Gross Interest Cover 24.97 15.16 7.07 3.51
Capex (87.3) 0.0 (214.9) (216.3) Tax Rate 0.69% 0.00% 0.00% 0.00%
Disposals Of FAs/subsidiaries 57.10 58.90 0.00 0.00 Net Dividend Payout Ratio 42% 70% 96% 106%
Acq. Of Subsidiaries/investments - - - - Accounts Receivables Days 25.33 30.82 22.89 22.63
Other Investing Cashflow 17.50 0.00 0.00 0.00 Inventory Days 16.17 21.32 17.01 17.78
Cash Flow From Investing (12.7) 58.9 (214.9) (216.3) Accounts Payables Days 171.5 207.4 165.5 173.0
Debt Raised/(repaid) (202.6) 0.0 93.0 100.0 ROIC (%) 23.6% 10.4% 6.0% 3.7%
Equity Raised/(Repaid) - - - - ROCE (%) 8.94% 3.76% 2.29% 1.62%
Dividends Paid (164.5) (70.0) (70.0) (70.0)
Net Cash Interest 60.20 (0.93) (2.38) (6.22)
Other Financing Cashflow (3,466) (3,230) (3,138) (3,135)
Cash Flow From Financing (3,773) (3,301) (3,118) (3,111)
Total Cash Generated (3,564) (3,148) (3,231) (3,232)
Change In Net Cash (3,361) (3,148) (3,324) (3,332)
Free Cashflow To Equity 66.7 151.5 (22.2) (26.9)
Key Drivers
Dec-10A Dec-11F Dec-12F Dec-13F
Average Baltic Dry Index 2,756.0 1,513.0 1,255.0 1,219.0
Average Bulk Rate (US$/day) 25,993.0 16,895.5 14,868.0 14,347.6
Bulk Rates (yoy Change %) 36.3% -35.0% -12.0% -3.5%
Capacity (no. Of Calendar Days) 4,191 4,320 5,760 7,020
Bulk Capacity (yoy Change %) 13.5% 3.1% 33.3% 21.9%
Fleet Size (no. Of Vessels) 15.0 16.0 21.0 25.0
No. Of Dry Bulk Ships 11 13 17 20
SOURCE: CIMB, COMPANY REPORTS
27
Dry Bulk Shipping THAILAND
January 30, 2012
Precious Shipping
PSL TB / PSL.BK
Current THB16.40 SHORT TERM (3 MTH) LONG TERM
Market Cap Avg Daily Turnover Free Float Target THB17.00
US$547.5m US$0.24m 39.5% Previous Target THB17.65
THB17,048m THB7.30m 1,040 m shares Up/downside 3.7%
Convicti
on
CIMB Analyst Limited near-term returns but
Raymond Yap CFA
T (60) 3 20849769
well positioned for future
E raymond.yap@cimb.com We do not expect PSL to offer investors excitement in the immediate
term given the weak dry bulk shipping rates. But PSL has enough
Kasem Prunratanamala firepower to purchase more than 20 secondhand ships in a declining
T (66) 2 657 9221
E kasem.pr@cimb.com
market, which would enable it to reap the rewards in the next upcycle.
We retain our Neutral call as opportunities abound
Share price info investors are likely to focus on the The loss of the seven time charter
Share price perf. (%) 1M 3M 12M near term. Our target price has been deals was compensated by PSL’s
Relative -4.1 -2.8 -19.0 cut for lower secondhand values ability to wriggle out of high-priced
Absolute 0.6 9.3 -9.9 though we no longer factor in a 10% newbuilding orders with ABG. PSL
Major shareholders % held discount to SOP. We cut 2011 ordered 18 handysize and supramax
Nishita Shah & family 43 forecast for weak rates but raise 2013 vessels from ABG in 2007 but since
Khalid Hashim & family 17.5 for more aggressive vessel purchases. then, prices have declined 25-30%.
Thai NVDR 5.3
Due to execution issues, ABG has
Weak spot market to hit delivered only one ship out of the
rates in 2012 nine due by end-2011. PSL used this
The dry bulk spot market has golden opportunity to resell five
declined considerably of late and newbuildings at a profit. The
handysize TCE rates are now proceeds have been reinvested in
approaching global financial crisis eight other secondhand/newbuilding
levels. This is expected to hit PSL’s ships at much lower prices.
earnings because its contract
PSL has more than US$100m in cash
protection for 2012 is now at only
and US$400m in debt facilities for
26%, down from 57% in 2011. PSL is
vessel acquisitions, which is more
reluctant to lock in contracts at
than enough to finance the 20
current low rates. Furthermore, the
secondhand purchases that we have
failure of ABG to deliver ships on
assumed for 2012-13. This is on top
time has caused PSL to lose seven
of the 19 outstanding newbuilding
lucrative time charter deals with
orders that PSL is due to receive.
above-market rates. As a result, PSL
This should expand PSL’s fleet from
is now more exposed to the spot
the current 26 vessels to 65 by 2014.
market than anytime in the past
This massive fleet expansion will
three years.
drive earnings.
Secondhand purchase
20
Price Close Relative to SET (RHS)
106 Financial Summary
19 102
18 97 Dec-09A Dec-10A Dec-11F Dec-12F Dec-13F
17 93
16 89
Revenue (THBm) 5,356 2,964 2,956 3,637 5,451
15 84 Operating EBITDA (THBm) 3,231 1,771 1,455 1,825 3,080
14 80
13 75 Net Profit (THBm) 3,047 905 874 922 1,110
12
10 71
Vol m
8 Core EPS (THB) 1.98 0.68 0.48 0.58 1.07
6
4
Core EPS Growth (57.8%) (65.6%) (30.0%) 21.4% 84.5%
2 FD Core P/E (x) 8.28 24.09 34.43 28.36 15.37
Jan-11 May-11 Aug-11 Nov-11 DPS (THB) 1.62 0.78 0.43 0.42 0.48
Source: Bloomberg
Dividend Yield 9.88% 4.77% 2.61% 2.54% 2.93%
EV/EBITDA (x) 4.65 9.68 11.34 13.40 11.32
52-week share price range P/FCFE (x) 3.88 NA 7.42 NA NA
16.40 Net Gearing (9%) 4% 0% 46% 101%
13.00 19.40
P/BV (x) 1.00 1.02 1.00 0.97 0.94
17.00
Recurring ROE 12.4% 4.2% 2.9% 3.5% 6.2%
Current Target % Change In Core EPS Estimates (9.3%) (0.6%) 43.9%
CIMB/consensus EPS (x) 0.79 0.60 0.61
SOURCE: CIMB, COMPANY REPORTS
IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
Designed by Eight, Powered by EFA
Precious Shipping
January 30, 2012
Profit & Loss Balance Sheet
(THBm) Dec-10A Dec-11F Dec-12F Dec-13F (THBm) Dec-10A Dec-11F Dec-12F Dec-13F
Revenue 2,964 2,956 3,637 5,451 Fixed Assets 17,035 16,767 25,153 36,101
Cost Of Sales (878) (1,201) (1,497) (2,040) Intangible Assets - - - -
Gross Profit 2,085 1,755 2,140 3,411 Other Long Term Assets 662.3 674.3 686.3 698.3
Total Operating Costs (1,111) (934) (1,201) (1,830) Total Non-current Assets 17,698 17,442 25,839 36,799
Operating Profit 974 821 939 1,581 Total Cash And Equivalents 4,210 6,014 5,101 3,069
Operating EBITDA 1,771 1,455 1,825 3,080 Inventories 5.70 7.17 8.66 11.33
Depreciation And Amortisation (797) (634) (886) (1,499) Accounts Receivable 33.90 33.81 41.60 62.35
Operating EBIT 974 821 939 1,581 Other Current Assets 86.9 86.9 86.9 86.9
Net Interest Income (275.4) (317.8) (320.5) (449.6) Total Current Assets 4,337 6,142 5,238 3,229
Exchange Gains - - - - Trade Creditors 11.10 13.97 16.86 22.06
Other Income 0.40 0.00 0.00 0.00 Short-term Debt 147.6 147.6 147.6 147.6
Associates' Profit 19.50 12.00 12.00 12.00 Other Current Liabilities 284.2 284.2 285.2 285.2
Profit Before Tax (pre-EI) 719 515 630 1,143 Total Current Liabilities 442.9 445.8 449.7 454.9
Exceptional Items 196.8 378.2 320.4 0.0 Total Long-term Debt 4,782 5,939 12,971 21,340
Pre-tax Profit 915 894 951 1,143 Other Liabilities 0.00 0.00 1.00 1.00
Taxation (0.60) (10.00) (10.00) (10.00) Deferred Tax 97.4 97.4 97.4 97.4
Profit After Tax 915 884 941 1,133 Total Non-current Liabilities 4,879 6,037 13,070 21,438
Minority Interests (10.00) (10.00) (18.89) (23.34) Shareholders' Equity 16,715 17,093 17,534 18,088
Net Profit 905 874 922 1,110 Minority Interests 34.60 44.60 63.49 86.84
Recurring Net Profit 708 495 601 1,110 Preferred Shareholders Funds
Total Equity 16,750 17,138 17,597 18,175
Cash Flow Key Ratios
(THBm) Dec-10A Dec-11F Dec-12F Dec-13F Dec-10A Dec-11F Dec-12F Dec-13F
Pre-tax Profit 915 894 951 1,143 Revenue Growth (44.7%) (0.3%) 23.0% 49.9%
Depreciation And Non-cash Adj. 1,053 939 1,194 1,937 Operating EBITDA Growth (45.2%) (17.8%) 25.4% 68.8%
Change In Working Capital (250.4) 1.5 (6.4) (18.2) Operating EBITDA Margin 59.8% 49.2% 50.2% 56.5%
Tax Paid (107.5) (10.0) (10.0) (10.0) Net Cash Per Share (THB) (0.69) (0.07) (7.71) (17.71)
Other Operating Cashflow (1,007) (378) (320) 0 BVPS (THB) 16.07 16.44 16.86 17.39
Cashflow From Operations 603 1,446 1,808 3,052 Gross Interest Cover 3.23 2.39 2.70 3.36
Capex (1,652) (1,653) (10,046) (11,954) Tax Rate 0.07% 1.12% 1.05% 0.87%
Disposals Of FAs/subsidiaries 827 2,172 1,602 0 Net Dividend Payout Ratio 90.0% 51.0% 47.0% 45.0%
Acq. Of Subsidiaries/investments - - - - Accounts Receivables Days 4.68 4.18 3.79 3.48
Other Investing Cashflow (925) (350) (350) (350) Inventory Days 1.18 1.96 1.94 1.79
Cash Flow From Investing (1,750) 168 (8,794) (12,304) Accounts Payables Days 11.60 3.81 3.77 3.48
Debt Raised/(repaid) 638 1,157 7,032 8,368 ROIC (%) 6.0% 4.9% 4.5% 5.1%
Equity Raised/(Repaid) - - - - ROCE (%) 4.6% 3.8% 3.6% 4.6%
Dividends Paid (1,299) (495) (482) (555)
Net Cash Interest 142.1 (473.4) (477.8) (592.4)
Other Financing Cashflow (5,124) (4,416) 1,468 2,616
Cash Flow From Financing (5,643) (4,227) 7,541 9,836
Total Cash Generated (6,790) (2,612) 556 584
Change In Net Cash (7,428) (3,769) (6,477) (7,784)
Free Cashflow To Equity (367) 2,298 (431) (1,477)
Key Drivers
Dec-10A Dec-11F Dec-12F Dec-13F
Average Baltic Dry Index 2,756.0 1,550.0 1,228.0 1,099.0
Average Bulk Rate (US$/day) 12,304.0 11,499.2 10,232.3 10,256.0
Bulk Rates (yoy Change %) -8.6% -6.5% -11.0% 0.2%
Capacity (no. Of Calendar Days) 7,801 7,848 10,950 16,973
Bulk Capacity (yoy Change %) -35.1% 0.6% 39.5% 55.0%
Fleet Size (no. Of Vessels) 21.0 22.0 38.0 55.0
No. Of Dry Bulk Ships 21 22 38 55
SOURCE: CIMB, COMPANY REPORTS
29
DRY BULK SHIPPING
January 30, 2012
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Score Range 90 – 100 80 – 89 70 – 79 Below 70 or No Survey Result
Description Excellent Very Good Good N/A
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Recommendation Framework #1 *
Stock Sector
OUTPERFORM: The stock's total return is expected to exceed a relevant OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 12 months. expected to outperform the relevant primary market index over the next 12 months.
NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected
benchmark's total return. to perform in line with the relevant primary market index over the next 12 months.
UNDERPERFORM: The stock's total return is expected to be below a relevant UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 12 months. expected to underperform the relevant primary market index over the next 12 months.
TRADING BUY: The stock's total return is expected to exceed a relevant TRADING BUY: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 3 months. expected to outperform the relevant primary market index over the next 3 months.
TRADING SELL: The stock's total return is expected to be below a relevant TRADING SELL: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 3 months. expected to underperform the relevant primary market index over the next 3 months.
* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand an d Jakarta Stock Exchange. Occasionally, it is permitted for the total expected
returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)
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January 30, 2012
Recommendation Framework #2 **
Stock Sector
OUTPERFORM: Expected positive total returns of 15% or more over the next 12 OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a
months. high number of stocks that are expected to have total returns of +15% or better over
the next 12 months.
NEUTRAL: Expected total returns of between -15% and +15% over the next 12 NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i)
months. an equal number of stocks that are expected to have total returns of +15% (or better)
or -15% (or worse), or (ii) stocks that are predominantly expected to have total returns
that will range from +15% to -15%; both over the next 12 months.
UNDERPERFORM: Expected negative total returns of 15% or more over the next 12 UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a
months. high number of stocks that are expected to have total returns of -15% or worse over
the next 12 months.
TRADING BUY: Expected positive total returns of 15% or more over the next 3 TRADING BUY: The industry, as defined by the analyst's coverage universe, has a
months. high number of stocks that are expected to have total returns of +15% or better over
the next 3 months.
TRADING SELL: Expected negative total returns of 15% or more over the next 3 TRADING SELL: The industry, as defined by the analyst's coverage universe, has a
months. high number of stocks that are expected to have total returns of -15% or worse over
the next 3 months.
** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily
outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.
ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCP - Excellent, BEC - Very Good, BECL -
Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent,
DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, ITD - Good, IVL - Very
Good, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT -
Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very
Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good,
TUF - Very Good:
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