2021 results in line with preannouncement
Pacific Basin Shipping’s (PBS) announced that it recorded the best results in its 34-year history with revenue rising 102.1% YoY in 2021 to US$2.97bn and net profit attributable to shareholders rising to US$845mn. This yielded a strong return on equity of 58% and strengthened the firm’s available committed liquidity to US$668mn with net gearing reduced to 7% at the year-end. The solid results are mainly driven by robust global demand for commodities and low fleet growth, aided by lower supply of shipping capacity due to fleet inefficiencies.
The Board recommends a final dividend of HK$0.42/sh and an additional special dividend of HK$0.18/sh. Combined with the HK$0.14/sh interim dividend distributed in August, we expect the full-year 2021 dividend to amount to HK$0.74/sh (US$457.5mn in total), representing 66% of the net profit excluding reversal of the vessel impairment provision.
Trends to watch
Strong revenue generation, competitive cost base contribute to solid results. The company’s large core business, which has mainly fixed costs, contributed US$709mn to earning, representing 91% of the group performance before overhead. The core fleet that has grown significantly over the past nine years generated average Handysize and Supramax daily time-charter equivalent (“TCE”) earnings of US$20,460 and US$29,350/day net in 2021 - about 160% more than in 2020 and well above the P&L break-even US$9,030 and US$10,290/day.
Robust global trade and low net fleet growth to support healthy 2022 dry bulk market. The dry bulk freight market in 2021 was characterized by a strong upward trend until October and the highest annual average freight rates for Handysize and Supramax ships since 2008. Rates corrected during 4Q21, but were still a strong US$25,000/day for both Handysize and Supramax at year-end. Market activity has resumed since early February, and we expect strong dry-bulk shipping to continue in 2022 and beyond, thanks to broad-based demand, low fleet growth, and tight supply.
Financials and valuation
We lift our 2022 and 2023 earnings forecasts 5% and 3% to US$822mn and US$883mn due to higher rate assumptions. The stock trades at 3.6x 2022e and 3.4x 2023e P/E. We maintain OUTPERFORM and raise our TP 5.3% to HK$5.37 (4.5x 2022e P/E and 4.2x 2023e P/E) offering 25% upside to reflect the company’s earnings upside from higher freight rates. Assuming a 50% payout ratio for 2022 (excl. non-cash impairment loss), we estimate the 2022 and 2023 dividend yield at 15.6% and 16.7%.
Risks
Lower-than-expected dry bulk demand; excessive new ship ordering in dry bulk.