Yangzijiang (YZJ) has been kept on Buy by Nomura with an unchanged TP of $1.70 as the research house anticipates the return of dry bulk carrier orders. This largely stems from the seven-month high Baltic Dry Index (BDI).
The research house notes that the BDI has rebounded to 915 recently, the first time the index has stayed above 900 since December 2014. According to Nomura, the higher BDI implies that many dry bulk carrier owners now operate at above cash cost breakeven levels, with some players turning a profit.
The research house further notes that freight rates for dry bulk carriers have continued to rise since June. If such a trend continues, the research house expects dry bulk orders to return, with YZJ, benefiting from this rebound.
Nomura opines that this seasonal rebound should be taken seriously. Indeed, the rebound has happened even during a general risk-off investors’ sentiment towards commodities.
Better supply side dynamics from the following could potentially further boost the BDI:
1. Negligible new orders as global orderbook to fleet ratio dipped to 2-year low of 19% in May
2. Monthly attrition of dry bulk carriers averaging 3.5m DWT in first 5 months of 2015 - highest level since 1H12.
Nomura’s TP was achieved using a 1.2x forward P/B ratio on blended FY15/16F BVPS of CNY6.40.
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