Huachuang Securities initiated coverage on PACIFIC BASIN (02343), assigning a "Recommend" rating. Pacific Basin is a stable and resilient leader in the minor bulk shipping sector, well-positioned to benefit from the industry's ongoing recovery. The firm forecasts the company's net profit attributable to shareholders for 2025-2027 to be USD 98 million, USD 160 million, and USD 220 million, respectively, representing growth rates of -25%, +59%, and +39%. Considering the minor bulk shipping market's potential for steady growth, the company's replacement value is projected to rise to USD 2.45 billion, with a P/NAV of 0.84. Based on a 1x P/NAV valuation, the target market capitalization range is RMB 17.1 billion / HKD 19.1 billion, corresponding to a target price of HKD 3.70. Huachuang Securities' key viewpoints are as follows: Pacific Basin is a global leading operator of Handysize and Supramax/Ultramax bulk carriers. Specializing in minor bulk cargo transportation, the company has built a fleet that balances scale with flexibility, capitalizing on the diverse and geographically dispersed nature of minor bulk cargo and its customer base. By mid-2025, the company operated a fleet of 266 dry bulk vessels, comprising 121 Handysize, 144 Supramax/Ultramax, and 1 Capesize vessel. Its Handysize and Supramax/Ultramax fleets are among the world's largest, holding market shares of 5% and 4%, respectively (based on vessels under 20 years old). These vessel types are highly versatile and self-sustaining, equipped with cranes for cargo handling, allowing them to access numerous ports globally constrained by shallow waters, locks, narrow channels, and river bends. Furthermore, the company leverages a network of 14 global offices to better serve customer needs, integrating triangular voyage routes by optimizing combinations of head-haul and back-haul voyages. This network effect enables it to achieve a high load factor exceeding 90% and consistently outperform the market in time charter equivalent (TCE) earnings. The minor bulk shipping market demonstrates resilience, with potential interest rate cuts and linkage to larger vessel markets potentially fuelling further industry recovery. 1. Demand Side: Demand for grain and minor bulk shipments remains relatively stable over the medium to long term, with short-term grain growth being particularly strong. Benefiting from the resumption of US-China soybean trade, Clarksons forecasts grain seaborne trade volume growth of 4.4% in 2026, with ton-mile demand growth of 7.2%. Minor bulk ton-mile demand is expected to grow by 2.0% in 2026, outperforming demand growth for iron ore and coal. 2. Supply Side: Industry fleet capacity is experiencing moderate growth, with smaller vessels still having potential for replacement. As of January 2026, the dry bulk orderbook-to-fleet ratio stood at 12.5%, a historically low level over the past two decades and the lowest among the three major shipping sub-sectors. This corresponds to projected fleet capacity growth of 3.5% in 2026 and 3.2% in 2027. Currently, the Handysize segment has the lowest orderbook ratio at just 8.9%, which remains below the proportion of the fleet aged over 20 years (14%), indicating insufficient capacity to meet replacement demand. 3. Catalysts: Monitor the interest rate cycle and the linkage effect with larger vessels. 1) Historically, during the latter half of interest rate cutting cycles, the BDI, BSI, and BHSI indices have rebounded to varying degrees alongside global economic recovery, driven by improved liquidity stimulating economic activity and ultimately boosting demand for physical goods. 2) The Simandou iron ore project is expected to generate significant incremental turnover for the large vessel market. Considering potential substitution for imports from Australia, full production by 2030 could cumulatively increase global iron ore seaborne demand by 9.4%. Rising Capesize time charter rates and second-hand vessel prices reflect growing market optimism. Given the linkage effect between large and small vessel markets, a future upturn in the large vessel market is also expected to benefit smaller vessels. Risk factors include a macroeconomic downturn, oversupply of shipping capacity, and significant fluctuations in oil prices.
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