Courage Marine: Riding on Higher Freight Rates
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Courage Marine
Broker House: DMG & Partners
Analyst: Tan Khow Siong
Price: $0.37
Target : $0.48
Recommendation: BUY (Maintained)
Upside: 23.68%
Summary:
Analyst: Tan Khow Siong
Price: $0.37
Target : $0.48
Recommendation: BUY (Maintained)
Upside: 23.68%
Summary:
Net profit growth of 52% to US$20.1m in 1H07 was in line with our forecast of US$34m in FY07. Courage Marine benefited from higher freight rates. Outlook is positive as demand for raw materials and bulk commodities remain strong. Maintain BUY for 12-month price target of S$0.48.
Strong showing in 1H07. Courage Marine reported a 52% YoY rise in net profit to US$20.1m in 1H07, on the back of a 33% rise in revenue to US$34.9m. This strong performance occurred in a period when four of Courage Marine’s 10 vessels were out of deployment for 175 days due to special/intermediate surveys in 1H07.
High Freight Rates. Courage Marine benefited from high level of dry freight rate. The Baltic Dry Index (BDI) averaged 5700 in 2Q07, more than double 2Q06’s average of 2700. Freight rates were high because of China’s strong demand for minerals and commodities. This was complemented by high level of building activities throughout Asia and Middle East, leading to demand for transportation of building materials.
Outlook. BDI is currently above 6500. Management expects present buoyant market conditions to continue and BDI to remain strong. This is due to no significant new supply of vessels in the immediate future to meet the strong demand for freight transportation. Demand for the transportation of raw materials and commodities in Asia Pacific and Middle East remains strong.
Valuation. Management has committed and fulfilled a pledge to pay 50% of net profit as dividend. Forward dividend policy is not stated explicitly but we expect the 50% payout ratio to remain, particularly when management is accumulating a cash hoard and is reluctant to pay exorbitant pricing for second-hand vessels to augment existing fleet. An interim dividend of US 0.66 cents has been proposed. We expect a total dividend per share of US 1.6 cents for FY07. Maintain BUY for a target yield of 5.1% or 12-month price target of S$0.48.
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