Huachuang Securities: First to give The Pacific Shipping (02343) a "recommended" rating, a leading owner of small bulk carriers that transcends cycles.

Huachuang Securities released a research report stating that it is initiating coverage on The Pacific Shipping (02343) with a "buy" rating. The Pacific Shipping is a leading small bulk and ultra-handysize dry bulk shipping operator with a steady operation and resilience across cycles, and is expected to benefit from the ongoing industry recovery. The company's forecasted net profits attributable to shareholders for the years 2025 to 2027 are $98 million, $160 million, and $220 million respectively, with growth rates of -25%, +59%, and +39% respectively. Considering the continued potential for growth in the small bulk shipping market, the company's reset value may rise to $2.45 billion, with a P/NAV of 0.84. The company is given a target price range of 17.1 billion RMB/1.91 billion HKD, equivalent to a target price of 3.70 HKD per share based on a P/NAV of 1. Key points from Huachuang Securities: - The Pacific Shipping is a global leader in small and ultra-handysize dry bulk shipping. - The company's core business is transporting small bulk cargo, and due to the diverse and distributed nature of its cargo sources, the company has established a fleet that combines scale and flexibility. As of mid-2025, the company operates 266 dry bulk vessels, including 121 small handysize vessels, 144 ultra-handysize/ultra-large handysize vessels, and 1 Cape-sized vessel. The company's fleet of small handysize and ultra-handysize dry bulk vessels is world-leading in size, with market shares of 5% and 4% (only counting vessels under 20 years old). - These two types of vessels are flexible and adaptable, capable of self-loading and unloading cargo (with cranes) for ports with shallow waters, water locks, narrow channels, and bays. Additionally, the company has established 14 offices globally to better meet customer demands, optimize triangular routes (such as optimizing the combination of forward and backward routes), leverage network effects, and achieve over 90% high load factors as well as consistently outperforming the market in equivalent period charter hire rates. - The small bulk shipping market remains resilient, and interest rate cuts and linkage with larger vessels may continue to drive industry recovery. 1. Demand side: Grain and small bulk shipping demand are relatively stable in the medium to long term, with impressive short-term growth in grain. Benefiting from the recovery of China-US soybean trade, Clarkson forecasts a 4.4% growth in grain shipping volume and a 7.2% growth in ton-miles in 2026; demand for small bulk shipping ton-miles is expected to grow by 2.0% in 2026, outperforming iron ore and coal demand growth. 2. Supply side: Industry capacity is growing moderately, with potential for small vessels to fill gaps. As of January 2026, the orderbook for dry bulk vessels accounted for 12.5%, at a historically low level over the past twenty years and the lowest among the three major shipping sub-sectors, corresponding to growth rates of 3.5% and 3.2% in 2026-2027. Currently, the orderbook for Handysize vessels is the lowest at 8.9%, still lower than the percentage of vessels over 20 years old (14%), and is unable to meet the demand for fleet renewal. - Catalysts: Focus on interest rate cuts and linkage with larger vessels. 1) Historically, in the latter stages of interest rate cuts, BDI, BSI, and BHSI indices have rebounded to some extent with global economic recovery, with the underlying reason being that interest rate cuts improve liquidity, promote economic recovery, and ultimately drive growth in physical demand. 2) The Simandou iron ore project will bring significant turnover increment to the large vessel market, with a potential to replace Australian imports, reaching production by 2030 could cumulatively boost global iron ore shipping demand by 9.4%, and the rise in Capesize period charter hire and second-hand prices shows an increasingly optimistic market outlook. Due to the linkage effect between large and small vessel markets, the optimistic outlook for the future large vessel market is expected to drive the small vessel market as well. Risk factors: Economic downturn, oversupply of capacity, significant fluctuations in oil prices.