After 24 years of improving supply and demand in the beneficiary industry+Red Sea bypass/Panama congestion, the scattered market is expected to bottom out and rebound
Pacific Shipping announced its 2023 results: 1) net profit to mother of 110 million US dollars, a year-on-year decrease of 84.4%; 2) EBITDA of 350 million US dollars, a year-on-year decrease of 62.9%. Among them, 2H23's net profit to mother was 0.2 billion US dollars, down 89.8%/71.8% yoy. The company announced year-end dividends+special dividends totaling HK$0.06/share, corresponding to a full year dividend rate of 75%. The sharp decline in profit in 23 was mainly due to the easing of port congestion after the epidemic, the increase in effective shipping capacity combined with weak demand for grain and small bulk cargo, and a drop in high freight rates. Looking ahead to 24 years, we believe that the supply and demand pattern in the dry shipping market is improving, and freight rates are expected to bottom up; in the short term, combined with Red Sea detours and Panama Canal congestion, market freight rates are expected to rebound significantly in the first half of the year. We slightly raised our 24/25 net profit forecast by 5%/1% to $280 million/350 million US dollars, adding a 26-year net profit forecast of 360 million US dollars; based on 1.0x 24E PB (average PB average in the company's three-year history), we raised our target price by 7% to HK$3.0 to reaffirm our “purchase”.
Port congestion eased in '23, increased capacity compounded by weak demand for food/small bulk goods, and freight rates continued to decline
In 2023, the average daily freight rate of the company's convenient ship/ultra-convenient ship was 12,250/13,830 US dollars per day, respectively, a year-on-year decrease of 47.7%/50.8%. In 2023, despite strong demand for imported iron ore/coal from China, the Russian-Ukrainian conflict affected Black Sea grain exports, and the American drought affected grain harvests, compounded by high overseas inflation to suppress European and American bulk import demand. According to the company announcement, Ukraine/Argentina/US grain exports fell 26%/42%/19% year on year in '23. Overall, the year-on-year performance of global iron ore/coal/food/small bulk cargo volume was +4.7%/+4.0%/-1.0%/+1.0% in '23.
Since the beginning of the year, dry bulk freight rates have bottomed out and rebounded, and market sentiment has rebounded
Since the beginning of the year, the dry market has bottomed out and rebounded, benefiting from boosted demand for iron ore/coal, etc., compounded by the effects of Red Sea bypass and Panama Canal congestion. From January 1 to February 29, the average value of the Baltic Sea Dry Bulk Freight BDI Index/Xiaoling BHSI Index increased by 106.2%/30.4% year-on-year (up 89.4%/52.8% from the same period in 2019). Looking ahead to the second quarter, we expect freight rates to continue to rise month-on-month, benefiting from the impact of the South American food export season combined with the Red Sea/Panama incident on shipping capacity.
Supply and demand are improving in the small bulk carrier market. The company's current valuation is attractive, and it reaffirms “buying”
According to Clarksons forecast, global small-bulk bulk/food/iron ore/coal shipping volume will be +3.0%/+2.1%/-0.1%/-0.6% year-on-year in 2024, and the recovery in demand for small bulk volumes is superior to that of bulk goods.
Global bulk carrier (bulk+small) supply increased 2.7%/1.7% year over year in 2024/2025 versus 2.1%/1.3% increase in demand. Among them, the global supply of small bulk carriers in 2024/2025 increased 3.7%/2.4% year-on-year versus 4.0%/3.3% in demand. The company focuses on the small bulk transportation market, and the boom has been recovering in 24 years. The company's current stock price corresponds to 5.5x PE and 0.8x PB in 24; according to the company's 50% dividend policy, the 24-year dividend rate is 9.0%, which attracts valuations and reaffirms “buying.”
Risk warning: Freight rates are lower than expected, supply is higher than expected, economic growth is lower than expected, geopolitical risks, natural disasters.