Transport Sector, China and Asia-focused Research

Charles De Trenck

Equity Bottom-Up

Pacific Basin Shipping / Equity Bottom-Up

Sustainability in shipping has again moved to the media front burner, with several good articles in the shipping press – and even a good piece in the <a href="https://www.wsj.com/articles/ship-owners-multibillion-dollar-quandary-buy-cleaner-fuel-or-a-fuel-cleaner-1521538200" target="_blank">WSJ today</a>. The main story is “low sulphur caps” of 0.5%, down from heavy oil’s current 3.5%, are coming to ships end 2019. The Handover is 1 Jan 2020, but one year from now all sorts of shipping operators will be scrambling.There are some that argue that low sulphur fuel will be plentiful when needed. However, at the moment, there are many who…

Sustainability in shipping has again moved to the media front burner, with several good articles in the shipping press – and even a good piece in the WSJ today. The main story is “low sulphur caps” of 0.5%, down from heavy oil’s current 3.5%, are coming to ships end 2019. The Handover is 1 Jan 2020, but one year from now all sorts of shipping operators will be scrambling.There are some that argue that low sulphur fuel will be plentiful when needed. However, at the moment, there are many who…

Sustainability. Low Sulphur Caps Are Coming. Pacific Basin Is the Poster Child (See CSR Discussion)

Thematic (Sector/Industry)

I recently witnessed a typical mistake in using EV (enterprise value; short form, market cap + net debt), where the author used it interchangeably with market cap. This got me to thinking how recent non-freshly minted MBAs as well as maybe even other three letter certified specialists, at the margin, may cut corners when valuing their stocks and portfolios and end up siding with momentum investors.It is still fresh in my mind how many (not all) colleagues, especially China-linked, used to care more about inside scoops than valuation approaches. I tend to see many tech plays in light of momentum and not valuation. We could call many of these counters CNBC or Cramer stocks.The discussion is dividend into a discussion and interview on faulty uses of the cost of capital in shipping,  as well as a discussion on some of the mechanical problems now inherent in WACC, especially as it applies to shipping and long-term finance of cyclical assets.

I recently witnessed a typical mistake in using EV (enterprise value; short form, market cap + net debt), where the author used it interchangeably with market cap. This got me to thinking how recent non-freshly minted MBAs as well as maybe even other three letter certified specialists, at the margin, may cut corners when valuing their stocks and portfolios and end up siding with momentum investors.It is still fresh in my mind how many (not all) colleagues, especially China-linked, used to care more about inside scoops than valuation approaches. I tend to see many tech plays in light of momentum and not valuation. We could call many of these counters CNBC or Cramer stocks.The discussion is dividend into a discussion and interview on faulty uses of the cost of capital in shipping,  as well as a discussion on some of the mechanical problems now inherent in WACC, especially as it applies to shipping and long-term finance of cyclical assets.

Frankenstein WACCs. False Idols of Equity, Debt (And Shipping Interview with Sr. Investor)

A good Conference call from <a href="https://www.smartkarma.com/entities/929" target="_blank" data-smartkarma-citation="entities:929:1">Pacific Basin Shipping Ltd (2343 HK)</a> in Hong Kong this afternoon. In all, about eight questions followed Management's presentation, which is attached. The usual discussions on operations and state of the market accompanied the Company's account of its road back to profit in 2017 (a small profit of $3.6m for full year implied about $15.6m profits in 2H17). PB reported EBITDA of about $134m in 2017, following about $57m in 1H17. This compared to $22m in 2016.The purpose…

A good Conference call from Pacific Basin Shipping Ltd (2343 HK) in Hong Kong this afternoon. In all, about eight questions followed Management's presentation, which is attached. The usual discussions on operations and state of the market accompanied the Company's account of its road back to profit in 2017 (a small profit of $3.6m for full year implied about $15.6m profits in 2H17). PB reported EBITDA of about $134m in 2017, following about $57m in 1H17. This compared to $22m in 2016.The purpose…

Quick Takeaways Pacific Basin '17 Results Conference Call

We don’t think <a href="https://www.smartkarma.com/entities/929" target="_blank" data-smartkarma-citation="entities:929:1">Pacific Basin Shipping Ltd (2343 HK)</a> will be facing the same issues as <a href="https://www.smartkarma.com/entities/21069" target="_blank" data-smartkarma-citation="entities:21069:1">Diana Shipping Inc (DSX US)</a> just gingerly walked through. But looking at the DSX results is interesting for what was not debated.DSX reported a huge 4Q17 loss when including asset write-downs of $422.5m (resulting in $438.4m loss). Perhaps rightfully so, the market glossed over the results. This would be because most large investors would look at the NAV of the company and restate the ship values rather than…

We don’t think Pacific Basin Shipping Ltd (2343 HK) will be facing the same issues as Diana Shipping Inc (DSX US) just gingerly walked through. But looking at the DSX results is interesting for what was not debated.DSX reported a huge 4Q17 loss when including asset write-downs of $422.5m (resulting in $438.4m loss). Perhaps rightfully so, the market glossed over the results. This would be because most large investors would look at the NAV of the company and restate the ship values rather than…

What’s Sort of Missing from the Diana Shipping Results (...Waiting for Pac Basin 28 Feb)

Equity Research Analyst, Maritime sector, Drewry Maritime Financial Research

Ankush Kathuria CFA, FRM

Equity Research Analyst, Maritime sector

Maritime Sector, Equity & Credit Research

Drewry Maritime Financial Research

With no ties to other players in the shipping, finance or banking world, we provide a uniquely impartial view of the markets and companies we cover. Our parent organization, Drewry is a leading independent provider of research services to the maritime and shipping industry, employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. Combining our market-leading resources with seasoned sector expertise DFRS offers a highly differentiated and comprehensive range of investment and financial research services to lenders and prospective investors in publicly listed maritime and shipping companies. The full service of reports, supporting resources and sector orientated webinars provides our clients with the most complete picture of the organisations under coverage as is possible. We have been charting and analysing the world’s maritime markets for more than 40 years. This unrivalled intelligence and understanding provides the foundation of our research service. Our analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.

<ul><li>After a strong freight rate rally in 2017, which also rubbed on stock prices, we have seen a significant correction in the recent past as the BDI has come down sharply from 1,743 in December to the current 1,089. The underlying reason for this revision is the seasonal weakness, owing to muted industrial activity in China. The moderation in commodity demand was exacerbated by the lag effect of steel production cuts announced by the Chinese government in October 2017. </li><li>Dry bulk stocks have witnessed outsized gains in 2017, but have corrected sharply amid the global rout in capital markets and the recent correction in dry bulk rates. We believe this provides an opportunity for investors to enter frontline stocks with no liquidity concerns. We prefer Star Bulk Carriers Corp (SBLK US) and Scorpio Bulkers (SALT US) as both have a well-balanced charter coverage, which will support earnings in first-quarter 2018, and are available at attractive valuations.</li></ul>

After a strong freight rate rally in 2017, which also rubbed on stock prices, we have seen a significant correction in the recent past as the BDI has come down sharply from 1,743 in December to the current 1,089. The underlying reason for this revision is the seasonal weakness, owing to muted industrial activity in China. The moderation in commodity demand was exacerbated by the lag effect of steel production cuts announced by the Chinese government in October 2017. Dry bulk stocks have witnessed outsized gains in 2017, but have corrected sharply amid the global rout in capital markets and the recent correction in dry bulk rates. We believe this provides an opportunity for investors to enter frontline stocks with no liquidity concerns. We prefer Star Bulk Carriers Corp (SBLK US) and Scorpio Bulkers (SALT US) as both have a well-balanced charter coverage, which will support earnings in first-quarter 2018, and are available at attractive valuations.

Dry Bulk Shipping - Recovery to Normalise in 2018

Hong Kong

Pacific Basin Shipping Limited, through its subsidiaries, provides marine transportation services and logistical support to its customers through the commercial operation of a large, modern, and uniformly-sized fleet of shallow-draft Handysize dry bulk carriers.

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Pacific Basin Shipping (2343 HK)

Sustainability. Low Sulphur Caps Are Coming. Pacific Basin Is the Poster Child (See CSR Discussion)

Sustainability in shipping has again moved to the media front burner, with several good articles in the shipping press – and even a good piece in...

Charles De Trenck

Frankenstein WACCs. False Idols of Equity, Debt (And Shipping Interview with Sr. Investor)

I recently witnessed a typical mistake in using EV (enterprise value; short form, market cap + net debt), where the author used it interchangeably...

Charles De Trenck

Quick Takeaways Pacific Basin '17 Results Conference Call

A good Conference call from Pacific Basin Shipping Ltd (2343 HK) in Hong Kong this afternoon. In all, about eight questions followed Management's...

Charles De Trenck

What’s Sort of Missing from the Diana Shipping Results (...Waiting for Pac Basin 28 Feb)

We don’t think Pacific Basin Shipping Ltd (2343 HK) will be facing the same issues as Diana Shipping Inc (DSX US) just gingerly walked through. But...

Charles De Trenck

Dry Bulk Shipping - Recovery to Normalise in 2018

After a strong freight rate rally in 2017, which also rubbed on stock prices, we have seen a significant correction in the recent past as the BDI...

Drewry Maritime Financial Research

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