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...

Dorian LPG (Hold, TP: USD41.80) - Near-term headwinds

The US–Far East arbitrage has been under mounting pressure from a weather-related price spike in the US and a somewhat concerning drop in Far East prices. Accounting for today’s fuel, canal and terminal costs, we believe the arbitrage for shipping is currently closed. Hence, we expect the anticipated rebound in VLGC spot rates to be pushed out in time, while we still forecast the outlook for warmer weather in the US to support the arbitrage going forward. We reiterate our HOLD, but have lowered ...

Dorian LPG (Hold, TP: USD44.00) - Still-solid earnings

The VLGC freight market has seen a significant decline recently, with solid draws on US propane inventory last week during the cold spell. However, we believe the forecast for warmer weather should keep inventories above the 5-year average and thus aid the US-Far East arbitrage, which currently implies rates of cUSD60k/day, well above spot rates. The latest dividend represents a modest c10% dividend yield, despite an earnings yield of c18% for its Q3 2024–Q2 2025 allowing for more. We have raise...

US chill set to cool VLGC markets

News of abnormally low temperatures in the days ahead could see US domestic propane demand tailwinds shift to headwinds and potentially threaten LPG exports, as we believe inventory levels could be tested. The US–Far East arbitrage has narrowed from USD380/tonne to USD200/tonne and spot rates are starting to slip as we head into the low season. While the fundamentals still look appealing to us in the medium and long term, we find considerable risk of negative momentum in freight markets based on...

Dorian LPG Ltd: 2 directors

Two Directors at Dorian LPG Ltd sold 15,000 shares at between 43.250USD and 44.500USD. The significance rating of the trade was 57/100. Is that information sufficient for you to make an investment decision? This report gives details of those trades and adds context and analysis to them such that you can judge whether these trading decisions are ones worth following. Included in the report is a detailed share price chart which plots discretionary trades by all the company's directors over the l...

Dorian LPG (Buy, TP: USD43.50) - Cash flow set to flow

The announcement of a reduction in Panama Canal transits to 18 slots (from a recent average of 32) from February 2024 has reinforced an already strong VLGC market, and, together with the FFA surging to a USD90k/day for VLGC freight rates in 2024, mean we expect Dorian spot rates to average USD71k/day in 2024. We estimate ~USD13/share cash flow over the next 12 months, implying potential for solid dividends and a potential 35% yield. We reiterate our BUY and have raised our target price to USD43....

Vermilion Compass: Weekly Equity Strategy

Bullish Breadth Divergences Persist The S&P 500 is just below 4165-4200 support, and the Nasdaq 100 (QQQ) is just below $350-$355 support. Given they were only 1%-1.5% below these supports at last week's lows, we cannot call them "decisive" breakdowns quite yet. Regardless, these levels are now resistance (in addition to the 200-day MA on SPX), and they are important lines-in-the-sand moving forward. We cannot be bullish if the SPX and QQQ are below the aforementioned levels, but it would be bu...

BUYs with much to look forward to

The VLGC market has gone from strength to strength in a year that looked set to be hit by a daunting delivery schedule. Although we are not yet out of the woods, the market’s underlying vigour is building confidence in lasting returns, most notably from elevated US inventory, promising export growth and attractive arbitrage. Current forward FFAs are highly supportive for asset valuations, and we expect VLGC values to increase. Hence, we believe the VLGC equities at ~1.0x EV/GAV represent attract...

Dorian LPG (Hold, TP: USD28.30) - Stretched valuation in hot market

Dorian LPG is still catering to investor demand, with its consistent irregular dividend supporting the current valuation. The VLGC market remains hot, and current FFAs for its fiscal year 2024 indicate the potential for USD5/share on top of our estimates. However, US rig count continues to fall (down 15% YTD), while propane stocks have been supported by unusually low domestic demand YTD, with more than half the 2024 orderbook due to hit the water in H2. We reiterate our HOLD, but have raised our...

Dorian LPG (Hold, TP: USD26.90) - Balanced risk/reward

VLGC freight rate momentum in 2023 has been supported by a wide arbitrage on abundant US propane inventories, and the current FFA implies cUSD5.5/share (20% of market cap) of added cash flow on our fiscal 2025e and 2026e. This contrasts with our view of potential downside risk to 2024 markets on a staggering 2023 delivery schedule and US export growth risk. The current 0.9x EV/GAV valuation implies near record-high second-hand prices and we therefore see a balanced risk/reward from here. Thus, w...

Dorian LPG (Buy, TP: USD26.10) - Slimming down the NAV discount

Market tailwinds serve Dorian LPG’s cash generation well, and the company has built a consistent track record of strong yields, with further potential from the current FFA curve of cUSD60k/day versus our USD40k/day estimate. The valuation continues to rise, with an EV/GAV of 0.90x implying historically high values of USD73m for a 5-year old VLGC amid abundant US propane inventories. We reiterate our BUY and USD26.1 target price.

Northern Lights

Dorian LPG (Buy, TP: USD26.10) - Markets still churning out cash

VLGC spot rates are off their winter highs, but remain in the mid-50s, well in excess of owners’ cash costs. With sound inventory levels in the US and a global energy market that continues to look tight into next winter, we remain bullish. The current FFA curve indicates USD40k+/day for the remainder of 2023 and beyond – broadly in line with our estimates, supporting our 2024e 14% dividend yield. We reiterate our BUY and have raised our target price to USD26.1 (25.5).

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.

Dorian LPG (Buy, TP: USD25.50) - We maintain our bullish view

We remain bullish on Dorian LPG’s near-term prospects, supported by VLGC spot rates continuing to climb despite the start of the low season, with the FFA curve indicating cUSD63k/day for February – well above the 2011–2022 average of USD29k/day. Hence, our 2023e adj. EBITDA is 29% above consensus, and we expect the company’s cash generation to support a c30% return of the current market cap in 2024–2025. We reiterate our BUY and have raised our target price to USD25.5 (21.2).

Share prices suggest 2024–2025e at an all-time low

The seasonal February trough for VLGC markets is nearing, but US inventories and current arbitrage look supportive of freight rates near-term. The fundamentals look attractive longer-term, with US export growth poised to outpace fleet growth. Meanwhile, the stocks in our universe have implied values far below quotes and share prices are discounting cUSD10k/day markets for 2024–2025e. We reiterate BUY on all three covered companies, with BW LPG our top sector pick at an EV/GAV of 0.63x.

Dorian LPG (Buy, TP: USD21.50) - Set for USD90k/day in Q3 2023

We have raised our fiscal 2023e adj. EBITDA by 20% on our higher Q3 2023 rate estimates, with substantial contango in the FFA curve indicating the company is on course for ~USD90k/day in the quarter. Dorian LPG has pursued significant shareholder returns through dividends and share buybacks YTD, and we see potential for more to come as our estimates indicate USD41.1m in cash build QOQ. We reiterate our BUY and have raised our target price to USD21.5 (19).

Dorian LPG (Buy, TP: USD19.00) - Entering high season

VLGC spot rates have seen positive momentum recently, with the FFA curve indicating ~USD55k/day for Q4, nearing the bullish ~USD63k/day of Q4 2019. In our view, this could lay the foundations for solid earnings this winter season, as the majority of Dorian LPG’s fleet is exposed to the spot market and set to reap the benefits from tight energy markets (with buyers seeking cheaper alternatives to LNG). We see an unwarranted valuation gap, at an EV/GAV of 0.72x versus the 2018–2019 average of 0.82...

Vermilion Compass: Weekly Equity Strategy

Don't Fight the Fed After a substantial rally, the S&P 500 was unable to break above its 200-day MA and market indexes have violated steep 5-week uptrends; we view this pullback as a critical test. This is where the rubber meets the road as we get to see if prior breakout levels/important moving averages hold and market indexes make a higher low, or if this was nothing more than a bear market rally and we are headed back to new lows. Barring a Fed pivot, and with Treasury yields and the U.S. do...