SHIPPING RECOVERY

Courage Marine: BDI higher at 3,707 today. MFI has just dipped into oversold region. OBV is flat. Immediate resistance remains at 20c. Picture of low volume pullback continues. As the fundamentals are good, I would accumulate when the technicals give me the signal.

Mercator Lines reported an excellent set of results for FY 10. It earned a total net profit of US$40.7 million. Though more impressively, its 4Q earnings of US$13 million was the highest quarterly earnings this financial year. Its balance sheet is very strong for a company with a young and modern fleet. Considering, 1Q 11 result will include the results from its newly acquired Panamax vessel and 2 recent contracts, I expect a better set of results provided the BDI remains strong to boost its spot rate income. Being the only profitable dry bulker in SGX last year, I guess it shows the Management astuteness in securing 70% of its revenues in various long term contracts and COAs.

GM89, Mercator is not the only profitable dry bulker on the SGX last year. You wanna go through your list again? I find Mercator\'s gearing of 66% a concern but you say that the balance sheet is \"very strong\" for a company with a young and modern fleet. I suppose you have compared with other companies with fleets of similar age profile and specs? Could you share with us? I would keep an eye on the convertible bonds which are due in 2012, especially. In such uncertain times, I would prefer to invest in Courage Marine which is in a nett cash position. However, if global economics remain sanguine, Mercator should do well.

Hi AK71, You are right. I missed out on Cosco which did make a profit in 2009. Courage Marine did make a Q4 profit though it barely broke even in FY 09 (can\'t blame it since it is dependent on BDI movement which were terrible in 1H 09). STX PO made a loss. A gearing of 66% is quite normal (actually pretty low) for a young shipping liner. I noticed the shipping liners listed in the West had much higher gearing levels. Take a look at Golden Ocean (dual listing in SGX last month), its gearing stands at 89.5% (excluding substantial off-balance sheet capital expenditure issues). It has a very modern fleet and an aggressive new-building projects. Vessels can last for 30 years. When your fleet average age is only 6 years, you can refrain from any major capex operations for the next 2 decades. Hence I am very comfortable with the gearing level. Companies like Courage Marine, while net cash, will have to continually renew the fleet every few years. Naturally capital will be recycled through the scrapping of older vessels. I like MLS for the following factors - a) Large and modern fleet of vessels b) High utilization rates (near 100%) c) Entered into long term contracts hence providing earning visibility no matter the state of the BDI d) 72% owned by Mercator Lines (India\'s second largest shipping coy). Both MLS and CM are good stocks to buy and hold IMO. Though they are polar opposites - spot VS COA and old vessels vs young vessels. These 2 differences creates 2 different breed of operating styles. Lets hope both companies can continue to improve on their Q4 results in 2010.

Hi GM89, Thank you for sharing the data you gathered. Mercator\'s income is 70% long term charters and 30% spot. Courage\'s income is 30% long term charters and 70% spot. Interesting number play. :lol: After a reader in my blog (who is in the dry bulk shipping business) told me about the impending burgeoning of dry bulk shipping capacity that is coming on stream over the next couple of years, I am tempering my confidence and optimism a bit. For now, the BDI has exceeded 3800 and has been uptrending recently. Hope it stays that way for a while more.

I don\'t expect the BDI to soar anytime soon. Personally, as long as it stays around 3000-4000, I think its pretty good. While demand for dry bulkers is increasing due to China and India increasing importing of commodities, the supply of dry bulk vessels will rise significantly over the next 2-3 years. As mentioned earlier, Golden Ocean ordered numerous capesive vessels in 2007 and the bulk of these vessels will be delivered over the next 2 years. Hence I am not a BDI bull for the next 2-3 years. I guess the shipping sector (like the property sector) undergoes a multi-year (if not decades) boom to bust cycle. Recovery will take years. Out of curiosity, where did you get the stats for CM\'s spot rate ? Last I heard, it was 100% spot rates. Did it secure any COA recently ? The Management did mentioned that they intend to capture more COAs hmm. On a personal note, I am not vested in any dry bulkers at the moment.