PSL outlook remains bright, brokers say

Most securities houses updating their research on Precious Shipping from July to August have recom¬mended buying the stock, despite the bleak outlook for the bulk ship¬ping industry next year due to an influx of new supply both this year and next and the global economic slowdown.

Their views are based on the company's high return and dividend yield, and the high portion of its capacity that is locked in at a fixed freight rate.

Twelve houses - including CLSA, JP Morgan, Goldman Sachs, Asia Plus Securities and Phillip Securities - recommend "buy" for Precious Shipping, with a target price of Bt22 to Bt39. Four recom¬mend "hold" and one recommends "sell".

Precious Shipping, Thailand's secondlargest shipper, operates a 44vessel fleet in the smallhandysize sector of the tramp freight mar¬ket. The fleet totals 1.13 million dead weight tonnes (DWT) at an average of 25,688 tonnes per ship.

Precious Shipping signed 12 con¬tracts last year for delivery of 12 new ships with DWT of 34,000 each. The logcarriers/bulkers will be built by India's ABG Shipyard and will be delivered at the rate of three a year from 2010 to 2013.

The volatility of the Baltic Dry Index (BDI) and the new supply of bulk vessels are Precious Shipping's major threats. According to ship¬ping experts Fearnleys, new ships to be delivered in 2008 and 2009 will boost global supply in terms of DWT by 9.4 per cent and 13.1 per cent year on year, respectively.

Phillip Securities has reiterated its "buy" recommendation on Precious Shipping with a new tar¬get price of Bt22.40, pointing to a more than 10percent upside gain and a high dividend yield.

The broker forecasts a 9.63percent increase in the shipper's 2008 profit before foreignexchange items to Bt4.68 billion. This reflects the raised daily freight rate forecast for the year of US$16,000 (Bt539,000) per vessel, from the previous estimate of $15,500. This is as a result of the betterthanexpected rate of $16,043 per day per ship on time charters, for which Precious Shipping has locked in 96.01 per cent of its capacity this year.

The higher earnings forecast is also based on the adjustment of the broker's forex assumptions to Bt33 from Bt32 against the US dollar to reflect the baht's depreciating trend in the first half of the year.

Even though Precious Shipping has locked in 64.03 per cent of capac¬ity in 2009 on time charters at an average daily freight rate of $15,540 per ship, freight rates are expected to moderate by 10 per cent from 2008 to $14,400 per day per ship next year because of an influx of new supply in the second half and the global eco¬nomic slowdown triggered by the subprime crisis and subsequent credit crunch.

Phillip Securities has estimated that the shipper will record a drop of 17.06 per cent in 2009 profit before forex items to Bt3.88 billion.

It expects the company to pay a fullyear dividend of Bt1.80 per share for next year's performance.

The shipper posted secondquar¬ter revenue this year of Bt2.02 billion, up 21.13 per cent year on year as daily timecharter equivalent rates jumped by 33.78 per cent to an aver¬age of $16,511 per ship. It reported Bt1.24 billion in quarterly net profit.

Asia Plus Securities is in the same camp as Phillip Securities and has maintained its "buy" recommenda¬tion on the stock, with a revised fair value of Bt28.99.

The broker has increased its 2008 and 2009 earnings estimates for Precious Shipping by 15.4 per cent and 4.1 per cent to Bt4.3 billion and Bt3.95 billion, respectively. This is based on 96 per cent of the com¬pany's capacity in 2008 being locked in at a fixed rate, the expected recov¬ery of the BDI in late August as China will then resume importing coal and iron ore after the Olympics, and the fact that the normal fourthquarter export season is approach¬ing.

CIMBGK Securities (Thailand) has upgraded its recommendation from "trading sell" to "neutral", with a higher target price of Bt22.70.

As of June 30, Precious Shipping had locked in 64 per cent of next year's hire days at a rate of $15,540 a day, which is lower than this year's $16,043 (with 96 per cent secured).

However, assuming the company secures 80 per cent of 2009 by the end of this year, the broker forecasts the average lockedin rate to rise above $17,000 a day, suggesting earnings stability in 2009.

The broker has raised its forecasts by 16 per cent for 2008, 37 per cent for 2009 and 13 per cent for 2010 to Bt4.96 billion, Bt4.81 billion and Bt3.11 billion, respectively.

"We are more bullish on Precious Shipping's 200809 earnings prospects because of its aggressive efforts to lock in future hire days at high current rates, suggesting that it will not see earnings contraction until 2010. Precious Shipping's peers, which do not have such an aggressive lockin strategy, will likely see earn¬ings contract in 2009," CIMBGK said.