Shares of shipping companies around the world are rising and Thailand’s shipping stocks have once again become the market’s darling as demand for ships rise and global shortage of container liners continues.
Shares of shipping liners such as Precious Shipping Plc (PSL), Thoresen Thai Agencies Plc (TTA), Regional Container Lines Plc (RCL) and Jutha Maratime Plc (JUTHA) have all seen a sharp increase in their share prices and an industry once shunned by investors has started to see a revival.
“This is something that nobody anticipated but the Covid-19 virus took a toll on the industry and many of the large shipping liners opted to cut back on the number of ships [deployed],” an industry insider told Thai Enquirer.
The cut back in the number of ships at sea helped put an end to the supply glut of ships and culminated in a shortage of container liners around the world. This in turn pushed the ‘Baltic Dry Index’ (BDI) which measures the volume of dry bulk shipping.
Krungsri Securities said the sector had previously been disrupted by the Covid-19 epidemic and related shutdowns. The disruptions caused containers to return empty from various ports, forcing shippers to up the rate. Rates for large container vessels spiked, forcing many large volume movers to switch to handy-size ships which saw a much-needed recovery in rates across all segments
The BDI currently stands at 1,901 points rising 48 points or 2.59 per cent. The 52-week low of the BDI was 393 points and the index is showing a steady rise.
“We are expecting to ride this wave of recovery for another 3-4 years,” said a shipping industry insider.
The cutback of container liners coupled with the recovering global economy has helped spur the demand for ships. To add fuel to fire has been the fact that globally most economies have been spurring consumption with billions and in the case of United States $1.9 trillion of stimulus.
Surging Market Cap.
Shares of RCL, PSL, JUTHA, and TTA have surged to levels not seen in years amid the increasing industry sentiment.
“The share price of JUTHA and RCL are up 17x from their 52-week low,” Krungsri Securities said in a report to its clients. “When compared, the 5x rise of PSL and TTA looks quite pale in comparison.”
The rising share price has pushed the market capitalization of companies such as RCL to 23.4 billion baht, while that of TTA is at 16.12 billion baht and PSL at 19.96 billion baht. Such valuations have not been seen for years.
Bullish Outlook into 2022 and Beyond
The downturn in the shipping industry has prompted many companies to cut back on their fleet acquisition programs and those that had ordered new ships were looking for ways to exit their contractual obligations.
This created a situation whereby very few new ships were being delivered to customers and put a strain on existing fleets.
New emission standards also meant that aging liners were retired adding to the strain.
The ongoing imbalance is likely to persist for a while as the new ships will take one to two years to reach the market, according to analysts.
“I think the market is likely to remain like this for a few years, and if you ask me, I would guess 3-4 years,” the industry insider from the shipping industry said.
“If the freight rate cycle remains in the money, the earnings of shippers will continue to rise,” Krungsri said in its report.
“During the last surge in shipping rates in 2001-2007 period, the share price of TTA rose 46x. Our research team has a BUY on PSL and a resumption of coverage BUY on TTA,” Krungsri said.
Adisak Prombun, the sector analyst for Krungsri Securities said in notes to clients that he maintains a positive outlook for 2021 and that Clarksons forecasts the world dry bulk trade to grow by 5.0% in 2021 driven by improving trade activity.
“Meanwhile, we expect supply to grow by only 1.4 per cent in 2021 supported by new-built deliveries and reopening of scrapyards. In addition, we expect positive momentum over the next few years as the dry bulk order book is at a multi-decade low at 6.5 per cent of total fleet,” Adisak said.
“We estimate TTA would turnaround to see a 928 million baht net profit for 2021. Reinstate coverage with BUY rating. Our target price is 11.20 baht per share based on 22x FY21F PE, premised on (i) rising BDI, and (ii) a recovery of offshore services business.”
As for PSL, he said that the firm reported a 64 million baht core profit for 4th quarter of 2020, up 127 per cent year on year.
“We maintain a positive outlook for 2021 premised on demand outpacing supply, and rising BDI. We revised up 2021 and 2022 earnings by 28 per cent and 20 per cent to 946 million baht and 1,176 million baht, respectively. Maintain BUY rating with a new target price of 12 baht (from 9.50 baht/share).”
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