Brokers' take: Dry bulk operators likely to post strong results in the rest of 2021, 2022

DRY bulk operators will likely post strong results in the second half of 2021 and in 2022 as global economic activities recover, said DBS Group Research.

In a report on Thursday, the brokerage team said bulk shipping demand growth will likely rebound to 4 per cent in 2021 before normalising to 2 per cent in 2022.

The demand for iron ore and coking coal trade is likely to be boosted by stronger global steel demand, while grain and minor bulk trades will likely also retain momentum in the medium to long term, DBS said.

H2 will likely also remain a seasonally stronger period this year and continue into 2022 as industrial activity normalises.

DBS noted that the dry shipping market has continued to recover since early 2021, aided by a rebound in trade and port congestion. The Baltic Dry Index, which is considered the bellwether index for the health of the dry bulk shipping industry, is also up 180 per cent year-to-date in 2021.

The broker team said the recovery will likely continue given that supply growth will remain muted for a while. Although the dry bulk orderbook, which has declined in recent years and has not yet recovered in 2021, may pick up soon, it should not impact freight rates too much.

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An increase in freight rates and bulker indices is also driving newbuilding prices and secondhand prices for the bulk carrier fleet, which should improve balance sheets for dry bulk operators due to asset repricing, DBS added.

In the sector, the broker team recommends Precious Shipping and Thoresen Thai Agencies for their exposure to the rebound in earnings for dry bulk operators, and has a "buy" call and target price of 24.40 baht and 21.70 baht on the stocks, respectively.

Shares of Precious Shipping were trading at 21.30 baht as at 1.03pm SGT on Thursday on the Stock Exchange of Thailand (SET), down 0.30 baht or 1.4 per cent.

Shares of Thoresen Thai, which also trades on the SET, were down 0.40 baht or 2.6 per cent at 15.10 baht.

DBS also recommends Yangzijiang Shipbuilding BS6 : BS6 0% to play the shipbuilding cycle, while noting that the shipbuilder is an undervalued proxy for the newbuild cycle. DBS has a "buy" call and target price of S$1.95 on the counter.

Yangzijiang Shipbuilding shares were down S$0.01 or 0.6 per cent at S$1.61 as at 1.20pm on Thursday.

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