Friday, December 19, 2008
Prospects bright for Pacific Basin and CSD
Macquarie Research has come out stating that they believe among all the current Shipping companies, Malaysia MISC, Hong Kong Pacific Basin and Thailand Thoresen Thai Agencies and China China Shipping Development are of sound management and will be able to weather the storm.
Given that Atlas Shipping just filed for bankruptcy protection, I personally feel without looking at any of the underlying balance sheet, strategies and what not that the only shipping firms truly safe are State Run Companies such as China Cosco Shipping.
Keith Wallis, Hong Kong - Thursday 18 December 2008
JUST a handful of shipping companies are included among the “diamonds in the rough”, companies that will prosper during the turmoil of the next couple of years, according to Australia’s Macquarie Research.
They comprise Malaysia’s MISC, Hong Kong’s Pacific Basin Shipping, Thailand’s Thoresen Thai Agencies and China’s China Shipping Development.
Outlining the reasons for their choice, Macquarie analysts said on dry bulk, “volatility will be the rule in 2009 and should present ample trading opportunities. Our preferred names in the space are Pacific Basin and China Shipping Development due to their relatively more stable operating positions”.
By comparison, “investors should avoid Korea Line due to high cost chartered-in capacity."
Macquarie forecast that the Baltic dry index would average 1,200 in the first quarter next year. The investment house said: "In our view the keys to long-term profitability in dry bulk shipping will be a reacceleration in Chinese steel production and the failure of the order book to materialise as actual deliveries."
Commenting on the container trades, the analysts said: “Overcapacity in the container industry should continue to erode pricing power on all routes in 2009. We expected losses to be substantial and widespread in the industry.”
Turning to MISC, Macquarie said that given the collapse in tanker charter rates and most operate on fixed costs “with huge leverage, we would expect MISC to pick up lots of assets on the cheap”. As a result MISC is favoured because it would “emerge as a much stronger global franchise”.
MISC also “enjoys a stranglehold on Petronas’ lucrative liquefied natural gas shipping contracts as well as offshore floating production storage and offtake and floating storage and offtake business”.
Thoresen Thai Agencies, along with Pacific Basin Shipping, is among Macquarie’s emerging leaders who are “alive in a sea of bitterness” with “liquid cashed-up values” who also have good management, a sound core business and defendable growth.
Aside from these shipping companies, Macquarie’s 2009 outlook also pinpoints companies in other sectors such as metals and mining, oil and gas and petrochemicals as firms that can survive, gain market share and take “significant advantage” of eventual improved conditions.
The metal and mining companies include China Coal, China’s Angang Steel and Indonesian coal producer Bukit Asam, while the oil plays are China’s Sinopec and India’s Reliance Industries.
Turning to the general economic outlook, Macquarie analysts led by the firm’s Tim Rocks said: “Asia must save Asia” next year with governments embarking on aggressive fiscal stimulus measures to offset the collapse in external demand in the first half of next year.
Even so half of Asia, including Japan, Hong Kong, Singapore, South Korea and Taiwan, will either move into recession or the downturn will intensify. By comparison, China, India and Indonesia are expected to record the strongest expansion next year.
Overall, Macquarie analysts expected the “clouds to clear from the second quarter” next year as inventories are rebuilt and government spending programmes kick-in in earnest.
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