4Q08 swung into losses of US$94.2m. In line with its own profit guidance on 11 Feb 2009, STX reported a net loss of US$94.2m in 4Q08, down from net profit of US$131m a quarter ago. We believe the losses came from unprofitable owned and short-term charter-in vessels that were placed on spot market. The operating cost exceeded revenue earned by these open vessels as BDI crashed from 3000 to 800 points in the quarter. Gross margin plummeted 8.2ppt qoq to a mere 0.6%. A significant forex loss of >US$40m as a result of KRW depreciation also dragged on earnings in 4Q08.
High capex, high gearing. We expect STX to gear up sharply in the coming two years, from net gearing of 20% currently to almost 100% by 2010 to fund its huge capex of US$1.8bn during 2009-10 periods. The group is expected to take delivery of 30 bulkcarriers by 2011, which represents 65% of its own dry bulk fleet currently. While most of the 12 Capesize deliveries are already covered by profitable long-term COA, the remaining deliveries are likely to be unprofitable in 2009-2010 based on our forecast of depressed BDI level averaging 900-1100.
Maintain Fully Valued; TP reduced to S$6.00. 4Q08’s lower profitability of owned vessels and more aggressive cutback in short-term charter-in fleet led us to revise down our earnings assumptions. We now expect STX to slide into marginal loss in 2009 and incur higher losses of US$117 in 2010. We believe BDI has approached its near term peak and will retreat from 2000 currently to our forecast of 1100 level. As such, we see downside risk to STXPO’s share price, which is highly correlated to BDI (>0.9). Maintain Fully Valued. TP reduced to S$6.00, still pegged to trough valuation of 0.4x FY09 P/NTA.
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