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STXOSV
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aleoleo
Master |
05-Jul-2011 11:19
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not much buyer not much seller, climb up slow and steady, those who wanna sell pls let it pass the recent high of 1.41 first ... | ||||
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starlene
Elite |
05-Jul-2011 09:41
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Surpassed its previous high $1.36 and even hit $1.40,should retrace back...need some negative news to drop if not well support,see if it goes below 1.35 then 1.28-1.30 got chance.previously when they announced its major share holders may sella stake it drop to a low 1.14 cum dividend,I asked most friends to buy and they reap good returns and have taken profits at $1.38level... | ||||
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catalyst
Senior |
04-Jul-2011 22:22
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Sorry. Hope retrace to support range 1.28-31 to make entry. | ||||
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Noob79
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04-Jul-2011 21:09
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Is it ??? i will buy at 1.33-1.35 lol
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Citigold
Senior |
04-Jul-2011 20:52
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So far so gd , stx chart show a breakout of the box pattern .Shall observe for a couple of days and enter again. |
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susan66
Master |
04-Jul-2011 18:38
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Sometimes it must rest to move further. Still quite steady.
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cheekong22
Member |
04-Jul-2011 17:38
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when i go in, it falls, when i do not go in, it goes up...... | ||||
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aleoleo
Master |
04-Jul-2011 09:43
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lagg behind, pls catch up | ||||
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bishan22
Elite |
01-Jul-2011 09:57
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No sign of fatigue........ steady and creep up slowly.  | ||||
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aleoleo
Master |
01-Jul-2011 08:44
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this fellow should go above the recent high px today, hold tight for the ride ... | ||||
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broadfeet
Member |
30-Jun-2011 13:37
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finally...sell 1.40
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starlene
Elite |
30-Jun-2011 11:24
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Can STX OSV do the same as its related co STX Pan Ocean when listed in 2006 at about $1.00 and went below that due to London's being bombed and subsequently shot up to current $8.50.STX PO even croseed $10 before.It migrated back to korea Stock exchange in 2007 and still has dual listing on SGX.Wonder STX OISV if keep for 5 years in cpf will achieve the same feat? PHILLIP SECURITIESRESEARCH Equities Initiating Coverage Singapore SGX – MAS Research Incentive Scheme STX Pan Ocean Co., Ltd 17 April 2006 STX Pan Ocean Co. (“STX PO”) is the market leader in the Korean dry bulk sector, and ranked top 10 globally in terms of deadweight tonnage. With over 40 years of experience, STX PO is recognized for quality of service, highly skilled work force and commitment to excellence. Increasing diversified shipping business. STX PO provides dry bulk shipping, container, car carrier and tanker services. Dry bulk shipping accounts for the lion’s share of FY05 revenue however we expect this proportion to decrease in future as the Company continues its diversification strategy. STX PO also took its first step into the LNG carrier segment, being selected as one of four joint venture partners to transport product for Korea Gas Corp. This should put the Company in good stead to weather unfavourable fluctuations in dry bulk shipping rates. Weaknesses in rates will affect FY06 performance. We expect dry bulk charter rates to hold at current levels. However these should still be lower compared to FY05 charter rates. This will negatively impact the Company, whose main business remains dry bulk shipping. Rates in the container and tanker segments will likely fall as well, as supply growth outstrips demand. These combined factors will lead to a fall in both top and bottom line. Initiate coverage with a BUY. Revenue growth will be driven by capacity expansion. However the effect will be limited as the Company has announced its plans to halt new vessel orders at least until mid 2006. We expect FY06 earnings to fall. STX PO is trading at 4.4x forward P/E, which we feel is somewhat low compared to its peers. Applying a forward P/E of 6.0x to forecasted FY06 EPS of 17.94 Singapore cents (11.04 US cents), we arrive at a fair value estimate of S$1.08, representing 27% upside based on last close. Key Financial Data (Financial Year Ended 31st December) FY04 FY05 %ch FY06F FY07F Revenue (US$m) 2,263.3 2,721.1 20.2 2,287.9 2,338.2 EBIT (US$m) 273.7 292.1 6.7 203.6 213.7 Net Profit (US$m) 163.5 279.8 71.1 189.3 200.1 Net Profit Margin (%) 7.2 10.3 +3.1ppt 8.3 8.6 EPS (US cents) 10.8 17.4 61.1 11.0 11.7 BV per share (US cents) 24.0 43.0 79.2 48.9 57.2 ROE (%) 58.0 51.0 -7.0ppt 24.1 22.0 Source: Company, Phillip Securities Research estimates Jeffrey Leck (65) 6531-1790 FAX (65) 6536-4435 jeffreyleck@phillip.com.sg Recommendation: BUY Previous call: Nil Price Previous close S$0.850 Target S$1.08 Share Statistics Shares 1.715b Market Cap. S$1.458m Trailing PER 3.0x Forward 2006 PER 4.8x P/BV 1.2x 52-week Price Range S$0.820 – S$1.09 52-week PER Range 2.8x – 3.7x Listing Bourse SGX-Mainboard Major Shareholders STX Shipbuilding 38.9% Korea Dev Bank 18.6% Raffles Nominees 13.7% Source: Bloomberg, Phillip Securities Research Price Chart 0.80.850.90.9511.051.11.157/13/20058/25/200510/6/200511/21/20051/4/20062/20/20064/3/2006 Company Profile STX Pan Ocean is the market leader in the Korean dry bulk sector, and is ranked top ten globally in terms of DWT capacity. It operates 60 owned vessels and approximately 200 chartered-in vessels at any given time. STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 2 Company Background STX PO operates as one of four major businesses of STX Corp. STX PO was established as Pan Ocean Bulk Carriers Ltd. in 1966, principally engaged in the marine transportation business. It was renamed Pan Ocean Shipping Co. in 1984. As part of the Korean’s government plan to rationalize the domestic shipping industry, the Company merged with four domestic carriers and acquired the vessels of another between 1984 and 1985. As a result of these mergers and acquisitions, a large amount of borrowings was transferred to the Company. In December 1993, the Company was placed under court receivership after failing to meet its debt obligations. Between 1993 and 2002, the Company underwent corporate reorganization and was able to fulfill all its annual payment on borrowing obligations. Its then major shareholders held an auction to dispose of the Company’s shares in 2004 and selected a consortium of companies affiliated with STX Corporation (“STX Corp”) as the preferred bidder. Through a series of transactions, these affiliates eventually held approximately 78.5% of the Company. The latter was also renamed STX PO. STX Corp was incorporated in Korea in 2004. It serves as an investment holding company, and operates a wide variety of business through its affiliate companies. STX Corp has three major affiliates: STX Shipbuilding, STX Engine and STX Energy. It is focused on the vertical integration of its shipping and energy business. Chart 1 below shows the corporate structure of STX Corp (including STX PO). Chart 1: Corporate Structure (as of 31 December 2005) Source: Company, Bloomberg, Phillip Securities Research STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 3 Table 1: Corporate Structure Details Name Relationship Remarks Kang Duk Soo Chairman Chairman of STX Corp and STX PO. STX Corp Ultimate Holding Co Investment holding company. Through its affiliates, STX Corp conducts energy business (coal and fuel supply to power plants) and trading (import and export of industrial supplies). Listed on Korea Stock Exchange (Code: 011810). STX Engine Related Co Diesel engines and marine equipments manufacturing. Engines are used in tanks, military vehicles, container ships, oil tankers, LNG carriers and power plants. It also engages in Alternative Energy and Environmental Facilities businesses. Listed on Korea Stock Exchange (Code: 077970). STX Energy Related Co Power generation. Operates two steam turbines power plants that supply electricity to industrial complexes. STX Shipbuilding Holding Co Shipbuilding. Built about 500 ships over the past forty years, ranging from product carriers, container ships and LPG carriers. Listed on Korea Stock Exchange (Code: 067250). Panobulk America Subsidiary 100% owned. Supports sales and marketing and handles cargo claims in the North-American region. STX PO Singapore Subsidiary 100% owned. Established to expand the Company’s container business and increase its presence in the region. STX PO UK Subsidiary 100% owned. Established to broaden service network of logistics and information in the region. STX PO Japan Subsidiary 100% owned. Established to secure Japanese shippers and to participate in near sea transportation with small-sized vessels. STX PO HK Subsidiary 100% owned. Established to diversify the Company’s business to include trading, investment and financing, and also strengthen its shipping business in the Pearl River area. STX PO Shanghai Subsidiary 100% owned. Established to tap the growing Chinese shipping market, and to launch logistics, port development, trading and banking businesses in China. Korea LNG Trading Co Joint Venture 18% stake. Principally engaged in LNG shipping and trading. Other JV partners include Korea Gas Corp (28%), Korea Line (36%) and Hyundai Merchant Marine Co Ltd (18%). Source: Prospectus, Companies’ Websites, Phillip Securities Research Business STX PO offers dry bulk shipping, container, car carrier and tanker services. STX PO is principally engaged in the provision of marine transportation services. The Company classifies its shipping services into the following types: transportation of dry bulk cargo (which is further sub-divided into tramper service, breakbulk liner service and large bulk service), container service, car carrier service and tanker service. Dry bulk shipping accounted for majority of the Company’s revenue and profits. Chart 2 below shows the breakdown of FY05 revenue by shipping service. STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 4 Chart 2: Revenue Breakdown in FY05 Tanker (2.76%) Car Carrier (2.02%) Others (0.04%) Container (4.27%) Dry Bulk (90.91%) Source: Company, Phillip Securities Research Dry Bulk Shipping Dry bulk shipping accounts for most of STX PO’s revenue. The Company’s dry bulk transportation plies regular scheduled services between all major ports in Far East Asia, Southeast Asia, Australia, and the Americas. It also includes routine coverage of shipments originating from remote regions in Indonesia and Malaysia to Central America, the Caribbean Sea, the Baltic Sea, the Black Sea and the Great Lakes in the US. Cargo transported mainly includes coal, iron ore and grain, steel and wood products. Dry bulk shipping is further split into three types (sectioned in italics below): Tramper Service (TS) STX PO’s TS covers all major ports and routes around the world. Its revenue accounted for 29.9% of FY05 dry bulk shipping revenue (27.2% of total revenue). TS does not operate under a fixed schedule or route instead departure dates and destination ports are scheduled according to customers’ needs on the spot market. Such charter contracts are generally more flexible and short-term compared to charter contracts from breakbulk liner service. Approximately two-thirds of the Company’s TS is offered on spot rates, with the remaining under contracts of affreightment (“COAs”). Its fleet of over 32 owned (including finance-leased vessels) and 46 chartered vessels as at end FY05 carries coal, grain, iron ore and other bulk cargo for a worldwide clientele. Breakbulk Liner Service (BLS) BLS caters to transportation of breakbulk cargo, which are typically raw materials that can be easily separated e.g. steel rods and coils. It accounted for 34.8% of FY05 dry bulk shipping revenue (31.6% of total revenue). Revenue generated from BLS is predominantly spot-based. BLS operates on a relatively fixed schedule on designated routes worldwide. In addition to regularly scheduled service between all major ports in the Far East, Southeast Asia and North and South America, BLS also includes routine coverage of shipments originating from remote islands in Indonesia and Malaysia to ports in Central America, the Caribbean Sea and Great Lakes. It operates a fleet of 5 owned and 80 chartered vessels as at end FY05. Large Bulk Service (LBS) LBS is similar to TS, except that LBS operates with Panamax and Capesize vessels. Cargo transported includes coal, iron ore and grain. LBS accounted for 35.3% of FY05 dry bulk shipping revenue (32.0% of total revenue). Approximately two-thirds of this division’s revenue is derived from spot STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 5 contracts. Notably, LBS fulfills a major part of the Korean’s steel manufacturing and power utilities companies’ marine transport requirements. It offers COAs to long-term partners such as POSCO and Korea Electric Power Corporation (“KEPCO”), providing exclusive services to these customers for a guaranteed amount (on a cost plus basis) for the lifetime of the vessels. LBS has a fleet of 10 owned and 51 chartered vessels. Container Service STX PO’s container service plies between Korea, Japan, major Chinese ports and most recently South-east Asia. Its revenue accounted for 4.7% of total FY05 revenue. Nearly all its service is provided through time-charter agreements. It has a fleet of 5 owned and 8 chartered vessels. Car Carrier Service Revenue from car carrier service accounted for 2% of FY05 total revenue. This service serves two customers: GM-Daewoo Auto & Technology and Hual AS. STX PO supplies crewmembers to man car carriers that GM-Daewoo operates. Hual transports GM-Daewoo cars, and STX PO has a strategic alliance with Hual to supply the latter with transportation capacity in the event that it experiences a shortage of available vessels. STX PO operates 2 owned and 4 chartered vessels to service these customers. Tanker Service STX PO’s tanker service transports palm oil products intra-Asia, and other oils and fats from the US to Far East Asia. It also transports chemicals from Saudi Arabia to China and Taiwan. Its revenue accounted for 2.8% of total FY05 revenue, and was predominantly spot-based. This business allocates one vessel to Procter & Gamble, its largest customer, to transport palm oil from Asia to the US. It also plans to expand its service to clean petroleum products transportation with the recent addition of two MR-sized tankers. Its fleet comprises 6 owned and 7 chartered vessels. Customers Sales appears well diversified with no significant concentration risk to any single customer. STX PO has an extensive and well-diversified clientele hence it does not appear that the Company is excessively reliant on any single customer. Based on FY02 to FY04 data, none of the top ten customers for TS, BLS and LBS accounted for more than 10% of their respective revenues generated, with the exception of POSCO and KEPCO in LBS segment. As explained earlier, services to these customers are offered on COA basis, which guarantees both capacity deployment and some mark-up (since pricing is done on a cost plus basis). We also note similar observations for its container and tanker services. As mentioned above, its car carrier service operates and depends solely on the performance of GM-Daewoo Auto & Technology, directly and indirectly (through Hual). Revenue constituted less than 3% of FY04 and FY05 respective total revenues hence we do not foresee, going forward, significant risks arising from a potential loss of this source of revenue. Industry Outlook Demand for Shipping Capacity Demand for shipping capacity is largely affected by the global economy. The chart below shows real GDP growth for the US, Japan and China. STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 6 Chart 3: Real GDP Growth -4-202468101219951996199719981999200020012002200320042005(%)JPYCHNUSA Source: Bloomberg, Phillip Securities Research . After a strong 2004 and 1H05, GDP growth in the US showed some weakness in the second half of last year. This was due, to a large extent, to damages inflicted by Hurricane Katrina on property and more importantly hydrocarbon production facilities. The latter led to higher gasoline prices that in turn caused a decline in US private consumption. The International Monetary Fund (“IMF”) expects 2006 growth to stabilize, or weaken with current oil prices, rising home mortgage borrowings accompanied by a possible price correction, low level of US household savings as near-term risk factors looming ahead. The Japanese economy continued its recovery throughout 2005, driven by a pick-up in final domestic demand. A strengthening labour market supported robust private consumption, which in turn led to increased business investments with improved corporate profitability. The IMF estimates real GDP growth of 2% in 2006, underpinned by both improving consumer and business sentiments, and hints that banking and corporate sector reforms need to continue to support this growth. China remains the driver for growth in the Asia Pacific. Since 1995, China’s real GDP growth rate ranged between 8% and 11%, and growth is expected to ease somewhat in 2006, supported by continued global demand for Chinese manufacturing exports. Any slowdown in the global economy (which IMF’s estimates have bias towards) means China’s growth will not be spared as well. Other factors such as an artificially deflated RMB, pollution in major cities as well as widening income gaps between urban and rural populace also can potentially threaten China’s pace of growth. Demand for shipping capacity will at best stabilize, with possible downside bias. The International Monetary Fund estimates that global economic growth will stabilize at 4.3% in 2006, however risks are increasingly slanted to the downside. Going forward, we believe that demand for seaborne trade will likely stabilize, with a possible downside bias commensurate with global economic outlook. STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 7 Supply of Shipping Capacity As at June 2005, the world’s order book for dry bulk carriers stood at 882 vessels totaling 70m dwt. The tables below shows the breakdown (by vessel type) and the order book delivery schedule. Table 2: World Dry Bulk Carrier Fleet Order Book Number Dwt (m) Number Dwt (m) % of Fleet Handysize 2,752 74 184 5 6.8% Handymax 1,337 63 265 14 22.2% Panamax 1,179 84 177 13 15.5% Capesize 687 110 256 38 34.5% 5,955 331 882 70 Source: Prospectus Table 3: Order Book Delivery Schedule 2006 2007 2008 and Beyond Number Dwt (m) Number Dwt (m) Number Dwt (m) Handysize 69 2 47 1 14 0 Handymax 102 5 71 4 31 2 Panamax 57 4 55 4 14 1 Capesize 91 12 70 10 50 9 319 23 243 19 109 12 Source: Prospectus * Excludes 221 vessels (16m dwt) scheduled for delivery in 2005. Order book for 2007 is not filled. As at June 2005, Clarkson Research estimates that total tonnage represented by Panamax vessels above 20 years old was 18.5m dwt. The same figure for Handymax and Handysize vessels was 10.5m dwt and 41.0m dwt respectively. There had been no Capesize vessels demolished since end 2003, and average retirement age for Capesize vessels had been postponed from 22 years in 1995 and 27 years in 2003. Supply of Capesize and Panamax shipping capacity is likely to stabilize. We interpret the postponement of scrapping of Capesize vessels as supply tightness in this category. Hence additions over the next three years will likely ease this tightness. We foresee some current demand for Capesize vessels to spill over to Panamax vessels (both Capesize and Panamax vessels serve long- and medium-haul voyages) hence scrapping of Panamax vessels is unlikely to pick up speed. Panamax newbuilds should replace the portion of ageing fleet, stabilizing Panamax shipping capacity. Handysize newbuild capacity is significantly insufficient to meet replacement needs. Current investments are into Handymax vessels that have better capabilities and tonnage. We foresee that Handysize vessels will slowly make way for Handymax vessels, changing the current mix of Handy-sized vessels but maintaining capacity. Baltic Dry Index The Baltic Dry Index (“BDI”) is the most widely used indicator that summarizes movements in dry bulk shipping rates. Chart 4 below shows the BDI from 2000 onwards and its volatility: STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 8 Chart 4: BDI (2000 to Current) 010002000300040005000600070001/5/20001/5/20011/5/20021/5/20031/5/20041/5/20051/5/2006Source: Bloomberg, Phillip Securities Research BDI is likely to stabilize between 2000 and 3000, with a bias towards the lower half. The near-term outlook for the shipping industry appears to be heading for a lull in demand. Industry sources suggest a slowdown in ordering activity since 2H05, which means global fleet growth should see some slowing down in the next two to three years. Scrapping of older vessels will be the factor that balances shipping demand and supply. We expect scrapping to continue as new vessels are delivered in future, but only to the extent that existing demand remains satisfied. This means that, barring exceptional events, shipping capacity supply will adjust (via demolition of older vessels) to support any further slide in charter rates. Hence we are of the view that the BDI will likely stabilize within a 2,000 – 3,000 range, with a downside bias commensurate with overweighing downside risks to global economic outlook. Other business segments, except car carrier service, are likely to see some weakness. According to a recent talk by Mr. Martin Stopford, head of Clarkson Research, oil tanker rates could fall in 2006 as the global tanker fleet grows faster than demand for it. He forecasts capacity to grow by 5.1% in 2006, ahead of an average 4% growth in cargo volume. Clarkson Research also estimates that supply growth in the container market is likely to exceed demand growth in 2006. These point to weakness in tanker charter rates and container freight rates. Conversely, strong demand for and shortage of car carriers should see STX PO’s fleet of car carriers enjoying better rates. Investment Merits STX PO is one of the largest dry bulk operators in the world. Its large-scale operations offer cost efficiency, timing flexibility for customers and a global reach with its extensive network of trade routes. Competitive advantages from being a STX Corp subsidiary. As part of STX Corp’s network, STX PO enjoys certain unique competitive advantages with respect to shipbuilding and crew manning services. STX Shipbuilding is a major shareholder of the Company that operates two STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 9 shipyards in Jinhae and Busan. Because of this relationship, STX PO’s newbuilding requirements can be met on an expedited basis. For example, the two MR-sized tankers that were delivered in March 2006 were ordered a year ago. This delivery time is much shorter than the three years it normally takes. Tax savings by adopting new tonnage tax system. With effect from January 2005, the Korean government implemented a tonnage tax system for global shipping companies based in Korea. This tax regime allows tax to be paid based on notional income as measured by the tonnage of ships these companies operate. STX PO’s adoption of this new tonnage tax system has reduced their FY05 tax liability, which is described in section “Financials” below. Potential Risks Cyclical and competitive nature of shipping industry. The shipping industry is highly cyclical and subject to seasonal volatility. As discussed earlier, this volatility is largely a result of the interplay of shipping demand and supply forces. As discussed in section “Industry Outlook” above, the industry seems to be heading for another down-cycle, with newbuildings continuing to be delivered in the next three years and the threat of a slowdown in the global economy. The impact will be felt on both top and bottom line in terms of charter rate pricings and margins earned on these pricings. For its impact to STX PO’s performance, please refer to section “Financials” below. The industry is also highly fragmented and competitive. Competition often occurs on a line-by-line basis, and the Company faces competition on most of its lines. Barriers to entry (into a particular line / route) for existing players are low, which means that any competitor can establish lines on STX PO’s routes by providing the appropriate vessels to service these lines. Competition is based predominantly on scheduling, pricing, location and suitability of vessels. This may translate to narrower margins or potential non-utilization of vessels as a result of lost contracts. Financials and Future Plans Table 4: Income Statements For the Year Ended FY02 FY03 FY04 FY05 Revenue 1,251.4 1,663.1 2,263.3 2,721.1 Cost of Sales (1,192.9) (1,545.8) (1,917.3) (2,390.9) Gross Profit 58.5 117.2 345.9 330.2 Net Other Operating Gains / (Losses) 17.0 (35.2) (28.4) 23.3 Selling and Marketing Costs (19.0) (18.1) (23.3) (39.3) Administrative Expenses (13.3) (14.3) (20.5) (22.1) Operating Profit 43.3 49.6 273.7 292.1 Finance Costs (25.9) (15.7) (18.6) (11.7) Finance Income 8.7 - - - Profit Before Tax 26.1 33.9 255.1 280.4 Tax Credit / (Expense) 3.0 (11.0) (91.4) (0.5) Profit After Tax 29.0 22.9 163.6 279.8 Minority Interest - - (0.1) - Net Profit Attributable to Shareholders 29.0 22.9 163.5 279.8 Source: Company, Phillip Securities Research Rising charter rates led to improving top line. Going forward, we expect revenue growth to be driven by capacity expansion. Between FY02 and FY05, revenue grew at a CAGR of 29.6%. Gross and net profit grew at an impressive CAGR of 78% and 112.8% respectively. Much of this increase can be attributed to rising freight rates over the period, as demonstrated by the rise of the BDI from approximately 1,000 in beginning STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 10 2002 up to its peak of approximately 6,200 in late 2004. This cooled off over 2005 and the BDI consequently averaged about 3,370, above 2002’s average of 1,140. Increase in revenue between FY02 and FY04 was achieved even as total fleet size decreased compared to FY02 (please refer to Table 5 below). We note that FY05 revenue increased 20.2% yoy and attribute it to the increase in fleet size from 233 in FY04 to 269 in FY05. With our expectation that the BDI will likely stabilize, we expect revenue growth to be driven mainly by increased capacity. The Company had reportedly mentioned that its plan is to increase its fleet to 100 vessels by 2010 but at the same time is unlikely to order any new vessels at least up to July 2006. Table 5: Fleet Size As at End of FY02 FY03 FY04 FY05 Total Number of Vessels 247 226 233 256 - Owned 61 57 57 60 - Chartered 186 169 176 196 Source: Company, Phillip Securities Research Falling rates and high bunker prices led to gross margin deterioration. Gross margin also increased over the four-year period, from 4.7% in FY02 to a peak of 15.3% in FY04 before cooling down to FY05’s 12.1%. Falling freight rates, as well as rising bunker prices, contributed to the decrease in last year’s gross margin. Historically, over 70% of the Company’s total fleet comprises chartered-in vessels, and such costs accounted for the bulk of cost of sales. This should cushion any deterioration in gross margin since charter-in rates, which are variable compared to costs of operating an owned vessel, should fall in tandem with overall declining rates. The other major cost item is bunker prices, which should remain at current levels for FY06. These factors combined should translate to lower gross margins going forward. Other operating gains (losses) comprise primarily gains (losses) from the valuation or disposal forward freight agreements (“FFAs”) and foreign exchange transactions. The Company’s sales and cost of sales are predominantly denominated in US dollars. The Company also incurs certain operating expenses in Won, which may give rise to exchange gains (losses). Exchange gains (losses) may also arise from the translation of Won-denominated assets to US dollars for the purpose of presenting the Company’s financial statements. Over the period in consideration, the Company enjoyed a gain of US$7.1m in FY02 and US$11.5m in FY04, and suffered a loss of US$1.3m in FY03. The Company uses FFAs to hedge the exposure to changes in fair value and cash flow of its long-term chartered-in vessels. The purpose is to “lock in” profit margins against any market fluctuations in spot contract rates, by matching FFAs with the charter-in agreements of its chartered-in vessels. All gains (losses) are recognized immediately in the income statement. Over the period in consideration, the Company suffered a loss of US$3.8m in FY02, US$46.6m in FY03 and US$43.8m in FY04. Adoption of tonnage tax led to significant tax savings. In FY05, the Company elected to be taxed under a new regime. The Korean government implemented a tonnage tax system for global shipping companies based in Korea, whereby tax liability is determined based on a shipping company’s notional income as measured by the tonnage of ships operated. Tonnage tax is calculated on a per vessel basis and is based on the tonnage of the vessel, voyage period, tonnage profit ratio and usage rate. The Company will remain on this system until FY09. By adopting a tonnage tax system, the Company saved a massive US$91m in tax expense for FY05. STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 11 Vessels, trade receivables, available-for-sale financial assets and cash make up the majority of the Company’s assets while trade creditors and borrowings make up the bulk of liabilities. Receivables and payables turnover days seem healthy, both at approximately 30 days. Liquidity, as measured by the current ratio, is also improving from 0.92x in FY02 to 1.76x in FY05. Net gearing stood at a comfortable 0.26x as at end FY05 following the Company’s successful listing. The Company had indicated that it would pay at least 30% of net profit as dividends. FY05 gross DPS amounted to 4.9 US cents. Singapore tax residents will receive dividends net of Korean withholding tax of 15%. Future Plans Since its successful IPO in July 2005, the Company continued its transformation by embarking on the following: Stake and potential management control of Korea Express. In October 2005, the Company announced that it acquired a 21.3% stake in Korea Express Co Ltd for a total consideration of US$158.3m. The latter is a listed company on the Korea Stock Exchange and is the country’s largest delivery service company. However, it came under court receivership since June 2001 after failing to service a 1.5 trillion Won debt. In a separate report in November 2005, the Company said it might acquire more shares and take management control, transforming STX PO into a “comprehensive logistics company”. The Company said it might sell its stake should it fail to acquire management control of Korea Express. Extending existing businesses’ reach to other regions. It had also been active in expanding its business into other regions in the world. The Company established subsidiaries in Singapore, Hong Kong, Shanghai, the UK and recently Japan. In an article dated December 2005, the Company said that it would assign 20 vessels to develop new shipping routes to South America from Europe. STX PO also believed that China’s demand for dry bulk imports would continue to grow going forward and would focus more attention in this aspect. Diversifying into the LNG shipping and other businesses. In November 2005, the Company invited bids with respect to the construction of two LNG carriers. The Company recently announced the award of one tender to Hanjin Heavy Industries. The LNG carrier, priced at US$215m, will be delivered in end 2009. In February 2006, the Company announced that it had established a joint venture that would engage in LNG shipping between Yemen, Sakhalin and Korea beginning 2008, transporting product for Korea Gas Corp. STX PO holds a 18% stake in the JV, which includes three other partners. The Company also added a 1,400 TEU container ship in December 2005 and added two MR-sized tankers recently, in a bid to develop its existing container and tanker service businesses. Investing into a new IT platform to support its growing and diversified business. In March 2006, the Company announced that it had appointed IBM Korea and STX ForceTec to transform the Company’s core processes and IT infrastructure. This project would create the platform for STX PO to grow and diversify its business, and will streamline the Company’s processes such as sales, shipping services, accounting and customer information management. The project would cost an estimated US$15m. Valuation and Recommendation We foresee the Company’s performance to be dragged down by falling rates. We estimate that the BDI should average 2,300 in FY06, down from FY05 STX Pan Ocean Co., Ltd 17 April 2006 Phillip Securities Research 12 average of 3,370, and this should translate to lower average charter rates for the Company’s dry bulk shipping business. Rates for its other services are likely to fall as well (except for car carrier services). Any potential upside in revenue will be driven by capacity expansion. Announced plans to date include the order of three tankers from STX Shipbuilding, which the Company expects to take delivery in FY06 / 07. Late last year, the Company awarded a tender for a LNG carrier to Hanjin, with another tender still pending. Apart from these five vessels, the Company has indicated that there would be no new vessel orders, at least up to mid FY06. Hence we do not foresee substantial changes in its owned fleet size. Changes in its chartered-in fleet capacity are more dynamic and difficult to predict. We adopt the stance that the Company will maintain its current chartered-in fleet size. We are using a P/E relative valuation model to value the Company. We have selected a basket of 11 peers whose operations are solely / predominantly dry bulk shipping. This list includes 7 companies listed in the Asia-Pacific region and 4 listed in the US. Table 6: Peer Comparison Name Listing Bourse Market Cap (S$m) P/B (x) Historical P/E (x) Forward P/E (x) ROE (%) GPM (%) OPM (%) NPM (%) YE STX Pan Ocean Co Ltd Singapore 1,458.2 1.24 2.93 4.38 51.0 12.1 9.9 10.3 Dec Korea Korea Line Corp Korea 389.7 0.70 1.08 8.09 90.9 15.5 14.5 17.0 Dec Japan Daiichi Chuo Kisen Kaisha Tokyo 908.5 2.42 12.87 11.98 34.5 19.6 14.1 8.7 Mar Shinwa Kaiun Kaisha Ltd Tokyo 738.7 2.31 9.61 9.39 40.9 19.5 14.5 9.0 Mar Hong Kong Pacific Basin Shipping Ltd Hong Kong 970.8 1.95 4.05 6.34 54.3 73.5 35.7 33.9 Dec Taiwan U-Ming Marine Transport Corp Taiwan 1,567.1 2.04 5.27 6.68 52.0 59.3 56.4 53.5 Dec Thailand Precious Shipping PCL Thailand 635.9 1.48 2.38 3.41 81.2 79.0 59.5 56.0 Dec Thoresen Thai Agencies Pcl Thailand 523.9 1.24 2.09 3.01 75.5 48.3 42.0 40.0 Sep Greece Diana Shipping Inc New York 815.5 Na 6.55 10.04 111.8 66.5 66.0 63.0 Dec DryShips Inc New York 497.3 0.87 2.61 5.21 Na 61.2 57.3 48.7 Dec USA Genco Shipping & Trading Ltd New York 695.7 1.24 5.45 7.35 Na 64.3 58.8 46.6 Dec Eagle Bulk Shipping Inc New York 706.8 Na 11.33 9.59 Na 61.7 23.5 11.9 Dec * Market cap adjusted based on exchange rates as at 13 April 2006. Source: Company, Bloomberg, Phillip Securities Research estimates. STX Pan Ocean Co., Ltd 17 April 2006 On average, these companies are trading at 7.4x forward P/E. The Asia Pacific companies are trading at an average of 7.0x forward P/E. We also calculate an average excluding Korea Line Corp and Thoresen Thai Agencies (because the former also engages in LNG shipping, and the latter provides liner shipping and other shipping related services) to arrive at a forward P/E for pure dry bulk shippers, and arrive at a figure of 7.8x. As at 13 April 2006, STX PO is trading at 4.4x forward P/E. Compared to the various peer averages, we feel that this is somewhat low. Its other Asia Pacific counterparts with comparable market cap, namely Pacific Basin Shipping and U-Ming Marine Transport, are trading at about 6.5x forward P/E, and we feel that this is a more appropriate multiple to use. Applying a forward P/E of 6.0x to forecasted FY06 EPS of 17.94 Singapore cents (11.04 US cents), we arrive at a fair value estimate of S$1.08. We initiate coverage of STX PO with a BUY recommendation, with 27% upside based on last close. Signed Phillip Securities Research 13 STX Pan Ocean Co., Ltd 17 April 2006 Table 7: Financial Statements Income Statement (US$m) (Financial Year Ended 31st December) FY04 FY05 FY06F FY07F Revenue 2,263.3 2,721.1 2,287.9 2,338.2 Cost of Sales (1,917.3) (2,390.9) (2,037.4) (2,076.6) Gross Profit 345.9 330.2 250.5 261.6 Other Operating Gains / (Losses) (28.4) 23.3 - - Selling and Marketing Costs (23.3) (39.3) (27.5) (28.1) Administrative Expenses (20.5) (22.1) (19.4) (19.9) Profit from Operations 273.7 292.1 203.6 213.7 Finance Cost (18.6) (11.7) (13.8) (13.1) Profit Before Tax 255.1 280.4 189.8 200.6 Income Tax (91.4) (0.5) (0.5) (0.5) Minority Interest (0.1) - - - Profit Attributable to Group 163.5 279.8 189.3 200.1 EBITDA 324.2 329.2 247.0 260.2 EPS (US cents) 10.8 17.4 11.0 11.7 Balance Sheet (US$m) FY04 FY05 FY06F FY07F Assets Cash and Cash Equivalents 94.4 137.4 96.4 205.0 Trade and Other Receivables 194.7 228.1 229.4 252.7 Inventories 15.8 21.7 10.4 22.4 Other Current Assets 120.5 51.6 48.3 54.8 Fixed Assets (Net) 506.5 617.1 667.7 669.1 AFS Financial Assets - 184.8 184.8 184.8 Other Non-current Assets 19.4 20.5 18.9 20.0 Total Assets 951.3 1,261.2 1,255.9 1,408.8 Liabilities Trade and Other Payables 208.6 184.6 154.9 164.6 Short Term Borrowings 74.2 63.8 60.6 62.0 Other Current Liabilities 96.4 1.0 1.5 1.5 Long Term Borrowings 197.0 260.9 185.3 183.8 Other Non-current Liabilities 11.0 17.7 15.1 15.1 Total Liabilities 587.2 528.0 417.4 427.0 Capital and Reserves Minority Interest - - - - Share Capital 114.7 134.0 134.0 134.0 Reserves 249.4 599.3 704.5 847.8 Total Capital and Reserves 364.1 733.3 838.5 981.8 Net Cash / (Debt) (176.7) (187.3) (149.5) (40.8) BV Per Share (US cents) 24.0 43.0 48.9 57.2 NTA Per Share (US cents) 24.0 43.0 48.9 57.2 Summarized Cash Flows (US$m) FY04 FY05 FY06F FY07F Profit Before Tax 255.1 280.4 189.8 200.6 Depreciation 50.5 37.1 43.4 46.6 Operating Cash Flow Before Working Capital Changes 350.9 314.4 246.5 259.8 Net Cash Flow from Operating Activities 298.5 148.1 182.9 220.6 Net Cash Flow from Investing Activities (87.0) (157.0) (124.1) (2.1) Net Cash Flow from Financing Activities (154.0) 51.7 (99.8) (109.9) Net Change in Cash and Cash Equivalents 57.5 42.8 (41.0) 108.6 Cash and Cash Equivalent at End of Year 94.4 137.4 96.4 205.0 Source: Company, Phillip Securities Research estimates Phillip Securities Research 14 STX Pan Ocean Co., Ltd 17 April 2006 Table 8: Fleet List Phillip Securities Research 15 STX Pan Ocean Co., Ltd 17 April 2006 Table 8: Fleet List (continued) Source: Company Annual Report 2005 Phillip Securities Research 16 STX Pan Ocean Co., Ltd 17 April 2006 Phillip Research Stock Selection Systems BUY > 15% upside from the current price HOLD Trade within ± 15% from the current price SELL > 15% downside from the current price GENERAL DISCLAIMER This publication is prepared by Phillip Securities Research Pte Ltd (“Phillip Securities Research”). 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starlene
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30-Jun-2011 10:47
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STX OSV Holdings (STXOSV.SG) – BUY Last done: S$1.37 Support: S$1.33 Resistance: S$1.57 This stock broke resistance at S$1.33 from a triangle on high volume, forming a raising window chart pattern. At this juncture, current prices are forming a new 52-week high. A convincing breakout points to a price objective at S$1.57. Aggressive investors bought after this break out may want to watch out for any pullback to be well supported at S$1.33. A breakdown below S$1.33 may result in a bull trap. | ||||
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aleoleo
Master |
30-Jun-2011 10:24
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definitely more to come .... vested | ||||
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bishan22
Elite |
30-Jun-2011 10:10
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Beautiful.            |
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bryancbq
Master |
30-Jun-2011 09:42
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agree! =D
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muifan
Master |
30-Jun-2011 09:38
Yells: "Take the leap of faith dont regret 20 years later!" |
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closed my entire position on STX OSV at 1.36 this morning... take profits and re-orgy-ganise my bullets to fight another battle..good luck all still in this boat !
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bishan22
Elite |
30-Jun-2011 09:36
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Resistance at 1.36. Must break to move higher. Good luck.  | ||||
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muifan
Master |
30-Jun-2011 00:00
Yells: "Take the leap of faith dont regret 20 years later!" |
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WAHEHEHehheeh gaecia.. i already set my profit protection at 1.35 IN CASE... this counter critical price is 1.36...if never fall below...still can hold :D
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Gaecia
Elite |
29-Jun-2011 23:58
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*_* wah you all... remember not to get carried away, TA  specialists or newbies. I am a newbie, not vested in this because don't know how to  buy breakouts safely (?). Be  on the alert  whether this is  an  exhaustion gap  to be filled, current  RSI reading  is slightly over 73% which is on the high side.     
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