Western Bulk Chartering (Buy, TP: NOK25.00) - Encouraging signs needed

Q3 marked the company’s seventh consecutive quarter with no dividends, and reflected soft recent performance given its policy of paying out 80% of net profits. However, our reduced normalised TC margin implies a 2025 dividend yield of ~16%, with upside potential to margins converging towards 2020–2022 levels. Also, the share price has fallen ~20% since the Q3 update, removing much of the downside risk, in our view. We reiterate our BUY, but have cut our target price to NOK25 (32).

Western Bulk Chartering (Buy, TP: NOK32.00) - Navigating towards smoot...

Western Bulk’s H1 report marks the sixth consecutive quarter with no declared dividends, reflecting its suboptimal results over the same period. However, on improving TC margins into 2025, we forecast a ~15% dividend yield for the year, with further upside potential to improving TC margins and an increasing vessel count. We reiterate our BUY and NOK32 target price.

Yard response and dry bulk qualms

Our trip to South Korea and China revealed Chinese shipbuilders are seeking growth to take on Korea’s established yards who are facing constraints. An eagerness to add capacity is one of our takeaways, as well as a gloomy outlook for Chinese real estate, which in our view should inevitably weigh on dry bulk demand.

A brewing challenge for the yards

Our 17th Annual Energy & Shipping Conference was well attended by investors and industry executives showcasing the still-growing interest for the sectors. Limited yard capacity is fuelling high newbuilding prices and raising freight rate expectations for the vast fleet renewal necessary in the coming decade. Long lead times underpin a bullish supply story for much of shipping in the coming years, albeit exposed to geopolitical risks affecting trade patterns. Our overall impression was general op...

Western Bulk Chartering (Buy, TP: NOK32.00) - Time to perform

Despite a weak 2023 (after-tax net loss of USD15.6m), we expect earnings to move towards our tweaked ‘normalised’ estimate in 2024 assuming historical TC margins. We see c70% upside potential to our 2024–2026e EBITDA from applying a net TC margin of 9% (midpoint of historical 7–11%) to the current FFA curve, implying a share price of cNOK50 at an EV/EBITDA of 5.0x. We reiterate our BUY, but have cut our target price to NOK32 (41).

Western Bulk Chartering (Buy, TP: NOK41.00) - Normalisation set to com...

Western Bulk Chartering reported a lower-than-expected H1 in a soft market; however, we believe the company will improve its earnings in a slightly better H2, and trending towards normalised net TC margins in 2024. We expect the average vessel count to rise in H2 and see additional c20% upside potential to our estimated net TC result for 2024e by increasing the vessel count to 165, utilising the vessel potential at the current cost base, with normalised margins. We reiterate our BUY and have rai...

Northern Lights

Western Bulk Chartering (Buy, TP: NOK40.00) - Discounted to normalised...

Western Bulk Chartering indicated a minor negative result for H1 in its market update in May. However, the FFA curve should offer earnings support – indicating a net time-charter margin of ~USD1,000/day for H2 and 2024 on historical margins, in line with our modelling for normalised markets long-term. Hence, we find the stock overly discounted following the recent share price drop, and have upgraded to BUY (HOLD), while we have lowered our target price to NOK40 (45).

Generally an optimistic bunch

DNB hosted its 16th annual Energy & Shipping Conference. On day two, we hosted sector panels and presentations for dry bulk, LPG, car carriers, LNG and tankers with senior management representatives from 29 shipping companies. A resurging Chinese economy coupled with tight supply outlook, strong demand growth potential and regulations putting pressure to remove older vessels were among the common themes. Overall, the discussions showcase optimism across the sectors.

Northern Lights

Western Bulk Chartering (Hold, TP: NOK45.00) - Set to return to ‘norma...

Western Bulk Chartering reported better-than-expected H2 results despite declining markets; however, we believe earnings should now trend towards normalised levels. Although we expect earnings to come down from last year’s highs, we see attractive 2023–2025e dividend yields averaging ~10%. We have downgraded to HOLD (BUY) but increased our target price to NOK45 (44).

Western Bulk Chartering (Buy, TP: NOK44.00) - Still better than ‘norma...

We expect H2 net profit after tax of USD17.5m, suggesting a Q4e DPS of ~NOK1.3, versus the NOK3.0 announced for Q3, as Supramax freight rates have softened during the quarter. However, a potential Chinese economic recovery could offer meaningful upside potential during 2023e as a swift turnaround should help the two main profit drivers, freight rate levels and freight rate volatility. We have upgraded to BUY but cut our target price to NOK44 (52).

Northern Lights

Western Bulk Chartering (Hold, TP: NOK52.00) - Sailing towards normali...

H1 net profit after tax was USD37.4m – at the lower end of the mid-June guidance and 2% below our estimate. Following the H1 report, we have made minor changes to our near-term estimates and expect net profit after tax of USD17.1m in H2, down ~50% versus H1. We see potential uncertainty for TC margins going into H2, with recent Chinese production data indicating a lack of support for freight markets. We have downgraded to HOLD (BUY) and cut our target price to NOK52 (60).

Northern Lights

Western Bulk Chartering (Buy, TP: NOK60.00) - A hefty dividend provide...

Ahead of the H1 results (due prior to market open on 15 August), we estimate net profit after tax of USD38.3m, in line with the guidance of USD37m–40m. Following a Q2e dividend of cUSD15m, we expect Western Bulk Chartering to have returned nearly 83% of its IPO market cap, highlighting its ability to generate significant shareholder returns. While we keep our view of normalised earnings going into 2023, we have upgraded to BUY (HOLD) and raised our target price to NOK60 (52).

Northern Lights

Western Bulk Chartering - Initiation of coverage - Non-directional dry...

Western Bulk Chartering trades vessels with an asset-light structure to generate margins in volatile dry bulk markets. Its earnings are directionally independent of freight markets, and it targets meaningful shareholder returns, with a quarterly payout policy of 80% from Q1 2022e. Still, we believe it is reasonable to assume a mean reversion of its net time-charter margin to its cUSD1,000/day average, thus we initiate coverage with a HOLD and NOK52 target price.