GF Securities: Shipping supply hitting bottom gradually, large ships may enter the prosperity cycle first.

GF SEC released a research report stating that the dry bulk shipping market is at the beginning of a new cycle, with signs of a bottom on the supply side. On the demand side, with the global manufacturing PMI expected to return to above 50 by early 2026, combined with potential fiscal expansion and interest rate cuts, bulk commodity demand is expected to pick up. Additionally, with continued West Mangrove production levels, larger vessels may lead the way into an upturn in the market. Although the stock prices of dry bulk shipping companies in Hong Kong and the US are moving in a highly correlated manner, there is a significant difference in earnings elasticity between different types of vessels. It is recommended to invest in Hong Kong and US-listed dry bulk shipping companies based on TCE elasticity and the quality of their balance sheet. GF SEC's main points are as follows: Cyclical Position: Supply bottoming out gradually, a structural bullish market is imminent The dry bulk shipping market is at the beginning of a new cycle. Signs of a bottom are present on the supply side: the global orderbook ratio is at historical lows, and due to shipyard capacity being occupied by high value-added container ships, LNG ships, and tankers, new dry bulk ships delivery is expected to decline in 2026-2027. Meanwhile, there are signals of recovery on the demand side: with the global manufacturing PMI expected to rise above the 50 mark by early 2026, coupled with potential fiscal expansion and interest rate cut expectations, bulk commodity demand is expected to improve. Combined with continued West Mangrove production, larger vessels may have an advantage in entering an upturn in the market. Vessel type structure determines performance elasticity Although the stock prices of dry bulk shipping companies in Hong Kong and the US are moving in a highly correlated manner, there is a significant difference in earnings elasticity between different vessel types. Quantitative calculations show that for every 100 point increase in the BDI index: Capesize vessels have the highest elasticity, with TCE increasing by approximately $1274 per day. Medium and small vessel types have relatively lower elasticity, with TCE increases concentrated at around $800 per day. Therefore, during an industry upturn, ship owners with a higher proportion of larger vessels will have stronger earning potential, while companies focusing on medium and small vessels will prioritize operational stability and defensiveness. Through a comparative study of listed dry bulk shipping companies in Hong Kong and the US, looking at TCE elasticity and the quality of their balance sheet, the characteristics of listed dry bulk shipping companies in Hong Kong and the US are as follows: Star Bulk Carriers (SBLK.US) has a multi-vessel configuration, making itself a carrier of industry beta, with its rich operating experience and economies of scale maintaining daily costs at a lower industry level, building a deep safety moat. It has profit protection in a downturn cycle and performance elasticity to follow market trends in an upturn cycle. Himalaya Shipping (HSHP.US) with 100% Newcastlemax+100% Scrubber/LNG configuration, has a market premium of around 40% or more, making it the highest operating leverage and youngest target (2 years old) in the US stock market. If the BDI cycle is expected to significantly increase, HSHP is a key target with elasticity. Genco Shipping & Trading Ltd (GNK.US), SafeBulkers (SB.us), and The Pacific Shipping (02423). These three companies have relatively low leverage ratios, balanced or predominantly small vessel configurations, and strong defensiveness in market downturns. If low volatility is desired, these companies can be a focus. Risk Warning Global macroeconomic recovery falling short of expectations, release of supply side capacity exceeding expectations, political resolution of GEO Group Inc leading to disappearance of dividend from "long haul", sharp increase in fuel costs and environmental policy risks, drastic fluctuations in BDI index, and risk of valuation traps.