Shipping companies reap rich harvest

NAREERAT WIRIYAPONG

Strong demand for bulk carriers has been a big boost for the transport and logistics sector but analysts are warning of slower growth ahead due to softening consumption from the United States and China.

Also, an expected 12% growth in the global fleet starting next year threatens to create an oversupply. The tight supply of carriers had pushed up marine freight rates by 29% to an average of US$15,410 per ship per day in 2007.

A possible US recession and larger global vessel supply threaten to sink freight rates this year.

Thoresen Thai Agencies (TTA) was the top performer in the sector with a one-year total shareholder return (TSR) of 93.76%, on capitalisation of 34.14 billion baht.

TTA's return on equity (ROE) rose to 39.37 baht a share in December 2007 from 37.73 baht in the previous quarter with net profit margins jumping from 23.31 baht per share over the period to 31.69 baht. Its book value per share was 31.51 baht per share in May 2008, against 21.81 baht in December last year.

With estimated growth of 7.31% in the global dry bulk fleet over the past year, TTA delivered strong financial results with net income of 4.96 billion baht or 7.72 baht per share and cash flow from operations of 6.84 billion baht.

Analysts said TTA had seen the highest growth, mainly from increased shipments of iron ore, coal and crops.

"Despite a slowdown of freight charges in the three months to March 2008, which was the second quarter of TTA's fiscal year, the company's financial results have so far been better than market expectations," said Jaroonpan Wattanawong, an analyst at Siam City Securities.

The market projects TTA's net profit to reach 5.8 billion baht, with Siam City Securities having a higher forecast of 6.1 billion in this fiscal year, but the company has already earned 4.5 billion baht in its first half, he said.

"Shareholders are happy seeing TTA's performance growth and that it has reserved cash for business expansion in the coming years," said Mr Jaroonpan.

TTA's fleet of 43 carriers will be expanded with five new vessels scheduled to be delivered from late 2009 to 2011.

The second-ranked company in the sector, Regional Container Lines (RCL), with a one-year TSR of 51.38% on market capitalisation of 19.7 billion baht, ordered five new ships in 2007 with two more planned this year to replace old ships for a total of 35 vessels.

Replacing old vessels with higher-specification new ones would help soften the impact of high oil prices on transport costs, an RCL executive said.

"We have been affected by rising oil prices. The fuel surcharge has been revised up, but this normally has a lag time of two months. That's the period when we have to shoulder higher costs," the executive said.

Among other shipping firms, Bangpakong Terminal (BTC) posted the worst shareholder returns with negative one-year and three-year TSRs of -20.73% and -34.70%, respectively.

With market capitalisation of 580 million baht, BTC recorded a net loss of 136.19 million baht in 2007 when ROE and net profit margin were -7.68% and -25.50%, respectively.

RCL said that fears of rising inflation, turbulent financial markets, and the US economic slowdown could put further pressure on trade growth in various parts of the world. Slow trade growth would directly affect freight rate competition that could become a major risk for the shipping business.

In 2007, trade on all major routes was strong, with the Asia-Europe sector showing 15.6% growth. Traffic is expected to increase both ways this year with 12.6% growth for Asia to Europe and 5.4% for Europe to Asia.

However, the increase in vessel supply as a result of fleet expansion among competing operators may harm the sector's outlook. Consequently, strict monitoring and cost controls are vital to ensure reasonable profitability and a solid basis for future expansion.