Yamato: Reiterates Pacific Shipping Lines ' 02343 " Buy" rating with a target price increased to HK$4.65

According to the Zhitong Finance APP, Daiwa released a research report reiterating the "buy" rating of Pacific Shipping (02343) and the target price rose by 3.3% from HK$4.5 to HK$4.65. The Company expects to achieve net profit attributable to shareholders of approximately $830 million to $850 million for the year ended December 31, 2021 (net loss of $208 million for the same period in 2020); and the reversal of impairment provisions. The bank noted that ship impairment reversals and adjusted earnings were better than expected, estimating its adjusted earnings for 2021 to be $699 million to $719 million.

The report mentions that the Baltic Dry Bulk Index (BDI) improved for two consecutive days and achieved the strongest daily growth of 13.8%, benefiting from positive growth in vessel types and increased demand in all economies, especially after the Lunar New Year holiday. The recent BDI rally could benefit from delayed iron ore stock replenishment and grain imports to China. However, the latest readings have fallen by about 70% from their peak in October 2021. According to Shanghai International Shipping estimates, the growth prospects for global coal and grain in 2022 are better than iron ore, which will benefit the fleet of Pacific shipping.

The bank argues that despite the increase in bunker fuel costs, the impact on Pacific shipping is limited, and its futures charter equivalent (TCE) earnings have been locked in port and voyage costs projected at contract rates, while fluctuating fuel costs are hedged through swaps. Under the 50% dividend of the proposed dividend policy, The dividend yield of Pacific Shipping is expected to be 17%-18% in 2022-23. Pacific Shipping shares bottomed out in early November and began to recover, although the Baltic Ultra Handy (BSI) and Handy (BHSI) indices remain in a downtrend. The bank believes that its stock price elasticity is due to the fact that the valuation is not high and the profit visibility is higher compared to other industries; It is believed that under the economic recovery, BSI and BHSI will become the catalysts for stock prices.