by CIMB-GK (25 April)
WE REAFFIRM our bullish expectations for the global dry bulk sector and forecast an average of 8,000 points for the Baltic Dry Index this year against 7,076 points last year, although freight rates will be more volatile as the gap in supply narrows.
Maintain 'overweight' on the dry-bulk sector: We believe that share prices of dry-bulk companies will do well particularly in H2 2008, with the key catalyst being stronger momentum on dry freight rates as the supply of iron ore and coal accelerates.
We are confident that demand will continue to be strong and vessel supply manageable. The threat of conversions is more bark than bite, while delivery delays and order cancellations may help reduce supply growth on the margins.
Our new target is based on a 20 per cent premium to our sum-of-the-parts valuation of $3.60, fusing the market value of its existing fleet and newbuildings, with a four times PE valuation for its chartered-in earnings, and the market value of its holding in Korea Express.
We have imputed a 20 per cent premium because STX Pan Ocean's share price is historically highly correlated to the momentum in dry-bulk freight rates. We did not previously input a premium. Earnings estimates remain unchanged.
- Research Report by CIMB-GK (25 April)
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