Of the chartered-in fleet, 206 are dry bulk vessels. Twenty two of these have a hiring period of more than one year and the others are chartered out for an average period of three months. Due to the high chartered-in cost for nine dry bulk vessels and low profit margin for its chartered-in fleet, the management expects a recovery in earnings in 2H09. These nine vessels were secured when BDI was at 3000-4000 level.
Twelve vessels are scheduled for delivery in 2009 and 2011 while 18 vessels are scheduled for 2010. STX PO has not cancelled any of their vessel orders but they are looking to delay some of the deliveries for 6-18 months.
For the US$600m CAPEX allocated for 2010, the Company has secured US$70m financing and have issued Corporate Bonds of KRW200b on 8 May 09 (US$157.5m) at an interest rate of 7.95%.
In our opinion, notwithstanding a short-term rally in the BDI on China's higher iron ore imports, freight rates will likely be soft when vessel oversupply hits the market from 2H09 onwards. Maintain SELL and fair price of S$4.35 based on 0.4x P/B (a typical shipping cyclical trough valuation).
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