Transport Sector, China and Asia-focused Research

Charles De Trenck

Thematic (Sector/Industry)

Travelling up the US East Coast and meeting with old investor friends allowed us to gauge the sentiment on shipping – with a look at contentious debates on the recent Maersk results, and other opportunities in shipping. The other big topic which remains misunderstood, feared and also offers opportunity is the impact of the new 2020 0.5% low sulfur fuel requirements. We’ve written about this a few times on SK. And the Media took up the discussion again about a month ago – followed by a good Morgan Stanley report about 10 days ago. We revisited the topic with shipowner friends.(The visit also was a good catch-up with <a href="https://www.smartkarma.com/profiles/605" target="_blank" data-smartkarma-citation="accounts:605">Daniel Hellberg</a> and a reminder of how Third World New York City's transport system can be...)

Travelling up the US East Coast and meeting with old investor friends allowed us to gauge the sentiment on shipping – with a look at contentious debates on the recent Maersk results, and other opportunities in shipping. The other big topic which remains misunderstood, feared and also offers opportunity is the impact of the new 2020 0.5% low sulfur fuel requirements. We’ve written about this a few times on SK. And the Media took up the discussion again about a month ago – followed by a good Morgan Stanley report about 10 days ago. We revisited the topic with shipowner friends.(The visit also was a good catch-up with Daniel Hellberg and a reminder of how Third World New York City's transport system can be...)

Investor & Operator Discussion Notes: Maersk Fallout…& More on Ship Fuels Post MS $90 Oil Report

This has been a crazy market, with dollar, US market and oil strong at the same time, with commodities up in general, but on a hair trigger. It’s a weird mix. But one that pivoted energy plays from dogs to stars once again. Which, of course, could pivot them back down, though not all oil names are created equal.I see three or four streams in my oil plays: (1) energy majors which have been most stable in inching back or overtaking their January highs, (2) energy MLPs, which have recovered back a…

This has been a crazy market, with dollar, US market and oil strong at the same time, with commodities up in general, but on a hair trigger. It’s a weird mix. But one that pivoted energy plays from dogs to stars once again. Which, of course, could pivot them back down, though not all oil names are created equal.I see three or four streams in my oil plays: (1) energy majors which have been most stable in inching back or overtaking their January highs, (2) energy MLPs, which have recovered back a…

Macroeconomics

Considered a possible risk for some time, China finally moved to block inflows of old China-bound vessels for scrapping  last week, in a continued bid to reduce pollution. The ban is expected to be in place by end 2018. Recall our updates last year on moves to block inflows of waste products, and the negative impact on China inbound container volumes, with continued impact in 2018.Short-term there is little impact on scrap steel prices. But this will mess with shipowner plans to comply with…

Considered a possible risk for some time, China finally moved to block inflows of old China-bound vessels for scrapping  last week, in a continued bid to reduce pollution. The ban is expected to be in place by end 2018. Recall our updates last year on moves to block inflows of waste products, and the negative impact on China inbound container volumes, with continued impact in 2018.Short-term there is little impact on scrap steel prices. But this will mess with shipowner plans to comply with…

China’s Ongoing Bid for Less Waste: China Bans Foreign Vessel Scrapping (Scrap Steel Data to ’69)

I recently witnessed a typical mistake in using EV (enterprise value; short form, market cap + net debt), where the author used it interchangeably with market cap. This got me to thinking how recent non-freshly minted MBAs as well as maybe even other three letter certified specialists, at the margin, may cut corners when valuing their stocks and portfolios and end up siding with momentum investors.It is still fresh in my mind how many (not all) colleagues, especially China-linked, used to care more about inside scoops than valuation approaches. I tend to see many tech plays in light of momentum and not valuation. We could call many of these counters CNBC or Cramer stocks.The discussion is dividend into a discussion and interview on faulty uses of the cost of capital in shipping,  as well as a discussion on some of the mechanical problems now inherent in WACC, especially as it applies to shipping and long-term finance of cyclical assets.

I recently witnessed a typical mistake in using EV (enterprise value; short form, market cap + net debt), where the author used it interchangeably with market cap. This got me to thinking how recent non-freshly minted MBAs as well as maybe even other three letter certified specialists, at the margin, may cut corners when valuing their stocks and portfolios and end up siding with momentum investors.It is still fresh in my mind how many (not all) colleagues, especially China-linked, used to care more about inside scoops than valuation approaches. I tend to see many tech plays in light of momentum and not valuation. We could call many of these counters CNBC or Cramer stocks.The discussion is dividend into a discussion and interview on faulty uses of the cost of capital in shipping,  as well as a discussion on some of the mechanical problems now inherent in WACC, especially as it applies to shipping and long-term finance of cyclical assets.

Frankenstein WACCs. False Idols of Equity, Debt (And Shipping Interview with Sr. Investor)

Equity Research Analyst, Maritime sector, Drewry Maritime Financial Research

Ankush Kathuria CFA, FRM

Equity Research Analyst, Maritime sector

Maritime Sector, Equity & Credit Research

Drewry Maritime Financial Research

With no ties to other players in the shipping, finance or banking world, we provide a uniquely impartial view of the markets and companies we cover. Our parent organization, Drewry is a leading independent provider of research services to the maritime and shipping industry, employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. Combining our market-leading resources with seasoned sector expertise DFRS offers a highly differentiated and comprehensive range of investment and financial research services to lenders and prospective investors in publicly listed maritime and shipping companies. The full service of reports, supporting resources and sector orientated webinars provides our clients with the most complete picture of the organisations under coverage as is possible. We have been charting and analysing the world’s maritime markets for more than 40 years. This unrivalled intelligence and understanding provides the foundation of our research service. Our analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.

<ul><li>After a strong freight rate rally in 2017, which also rubbed on stock prices, we have seen a significant correction in the recent past as the BDI has come down sharply from 1,743 in December to the current 1,089. The underlying reason for this revision is the seasonal weakness, owing to muted industrial activity in China. The moderation in commodity demand was exacerbated by the lag effect of steel production cuts announced by the Chinese government in October 2017. </li><li>Dry bulk stocks have witnessed outsized gains in 2017, but have corrected sharply amid the global rout in capital markets and the recent correction in dry bulk rates. We believe this provides an opportunity for investors to enter frontline stocks with no liquidity concerns. We prefer Star Bulk Carriers Corp (SBLK US) and Scorpio Bulkers (SALT US) as both have a well-balanced charter coverage, which will support earnings in first-quarter 2018, and are available at attractive valuations.</li></ul>

After a strong freight rate rally in 2017, which also rubbed on stock prices, we have seen a significant correction in the recent past as the BDI has come down sharply from 1,743 in December to the current 1,089. The underlying reason for this revision is the seasonal weakness, owing to muted industrial activity in China. The moderation in commodity demand was exacerbated by the lag effect of steel production cuts announced by the Chinese government in October 2017. Dry bulk stocks have witnessed outsized gains in 2017, but have corrected sharply amid the global rout in capital markets and the recent correction in dry bulk rates. We believe this provides an opportunity for investors to enter frontline stocks with no liquidity concerns. We prefer Star Bulk Carriers Corp (SBLK US) and Scorpio Bulkers (SALT US) as both have a well-balanced charter coverage, which will support earnings in first-quarter 2018, and are available at attractive valuations.

Dry Bulk Shipping - Recovery to Normalise in 2018

Hong Kong

Pacific Basin Shipping is a maritime transport company specializing in international dry bulk shipping, operating a global fleet of Handysize and Supramax vessels. The company transports a wide range of commodities including grains, coal, iron ore, cement, and forest products. It was founded in 1987 and is headquartered in Hong Kong.

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Pacific Basin Shipping (2343 HK)

Investor & Operator Discussion Notes: Maersk Fallout…& More on Ship Fuels Post MS $90 Oil Report

Travelling up the US East Coast and meeting with old investor friends allowed us to gauge the sentiment on shipping – with a look at contentious...

Charles De Trenck

The Best Way to Play Oil with Cover

This has been a crazy market, with dollar, US market and oil strong at the same time, with commodities up in general, but on a hair trigger. It’s a...

Charles De Trenck

China’s Ongoing Bid for Less Waste: China Bans Foreign Vessel Scrapping (Scrap Steel Data to ’69)

Considered a possible risk for some time, China finally moved to block inflows of old China-bound vessels for scrapping last week, in a continued...

Charles De Trenck

Frankenstein WACCs. False Idols of Equity, Debt (And Shipping Interview with Sr. Investor)

I recently witnessed a typical mistake in using EV (enterprise value; short form, market cap + net debt), where the author used it interchangeably...

Charles De Trenck

Dry Bulk Shipping - Recovery to Normalise in 2018

After a strong freight rate rally in 2017, which also rubbed on stock prices, we have seen a significant correction in the recent past as the BDI...

Drewry Maritime Financial Research

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