Courage Investment Group (formerly: Courage Marine)

COURAGE MARINE’s earnings recovered strongly in 2010 and the dry bulk shipping company is proposing a jump in the final dividend – from 0.47 US cent to 0.71 US cent a share.

That translates into a dividend yield of about 4.8% based on its recent stock price of 19 Singapore cents.

Courage Marine, which operates 9 dry bulk carriers which mostly carried coal and sand last year, reported a US$9.0 million net profit for the full year compared to US$75,000 in 2009.

However, most of the 2010 earnings were achieved in the first half.

Courage Marine made US$8.2 million in the first half, and eked out only US$800,000 in the 2H as the Baltic Dry Index tumbled.

It barely broke even with a net profit of US$12,000 in 4Q when the Baltic Dry Index averaged about 1,500, which is about half way down from an average of about 3,000 in 4Q09.

The Baltic Dry Index has fallen sharply since 3Q10. Source: Bloomberg
The index is currently hovering around the 1,200 level.

That Courage Marine even had a profit is testament to its ability to operate cost-effectively its fleet of old ships which average 25 years of age.

As Mr. Hsu Chih Chien, Chairman of Courage Marine, said: “The weak market conditions have led to losses in many dry bulk shipping companies. Fortunately, the Group remains profitable, led by the management’s years of experience. We effectively utilise the strategy of using pre-owned vessels and minimal operating costs to achieve over five consecutive years of profitability.”

For 2010, Courage Marine’s turnover increased by 67% to approximately US$46.5 million due to the higher utilisation and higher fleet capacity during the year, particularly in 1H.

CFO Carl Yuen - The Group's cost of sales increased at a slow pace of only 21% to approximately US$35.2 million, resulting in a gross profit of US$11.3 million compared to gross loss of US$1.1 million in FY2009.

Correspondingly, the Group achieved a gross profit margin of 24.4% for FY2010.

CFO Carl Yuen highlighted Courage Marine's strong customer base - which includes big names like China Coal Energy and Glencore International - and gave that as the key reason the company has no bad debt issue.

In addition, he said, the company is in a net cash position (US$29.4 million) and has a low interest burden (US$119,000 in 2010) when its peers commonly have 50-60% gearing (which could cause severe financial stress).

Catalysts: BDI turnaround, Hong Kong dual-listing

Courage Marine cited a report from Deutsche Bank on Feb 9, 2011, saying the BDI may turnaround and return to normal in 1 to 2 months’ time.

The Group currently has a diversified fleet comprising four handysize vessels, four panamax size vessels and one cape size vessel, which represents a total of over 576,000 deadweight tonnes in capacity.

Last month (January), Courage Marine announced its plan for a dual-listing in Hong Kong to facilitate ‘business opportunities, customer relationship and business development in the PRC.â€

It must be noted that they only made $12k profit for 4Q due to the low BDI rates. The BDI hasn't made any improvements over the past quarter so I don't expect any swift recovery in their earnings. Fellow dry-bulkers like Golden Ocean and Mercator Lines have fixed their revenue on long term charters so they are not too exposed to the BDI fluctuations but even they did report a drop in profitability. When do you project a recovery in the BDI ? I noticed that CM looks a little bullish about BDI recovery in their press release.

Not too sure why they are seeking to dual-list when -

i) They are in a net cash position.
ii) They are not dealing in a niche business which will attract attention from SEHK investors. They already got shipping coys there.
iii) Their valuations looks pretty decent with double digit PER and above book value.

Please share your views and correct any mistakes on my side.

(Not vested in any shipping company)

According to the company, the following is their rationale of dual listing:-


The Board is of the view that it is beneficial for the Company to have a dual primary listing in Singapore and Hong Kong as the Company can have ready access to different equity markets and investors’ base and improve the liquidity of its shares. Thus, the Proposed SEHK Listing will enhance the long-term growth prospects of the Company and will therefore maximise the value of the Company and its shares. The Board also believes that the Proposed SEHK Listing will also serve to enhance the Company's profile in Hong Kong and in the People’s Republic of China (“PRC”) and facilitate business opportunities, customer relationship and business development for the Company in the PRC, which is an increasingly significant market for the Company


The company is fully aware of the challenging market condition for dry bulk shipping for Year2011.

******
A commentary at the date of the announcement of the significant trends and competitive conditions of the industry
in which the group operates and any known factors or events that may affect the group in the next reporting period
and the next 12 months.

The dry bulk market has not fully recovered and was unstable in the past few months. The BDI, which has a close correlation to
freight rates, dropped sharply to about 1,000 in January 2011. The Group remains cautious on the outlook for this year.
As the Group took delivery of a Capesize vessel, MV Cape Warrior, and a Panamax size vessel, MV Panamax Leader during
the first half of last year, and disposed the oldest vessel of the Group's fleet, MV Jeannie III, the updated tonnage of the fleet is
about 580,000 dwt. With the increase in capacity, the Group expects to have higher turnover once the dry bulk market recovery
in full.
The Group expects that the financial performance for 2011 to be adversely affected by the current challenging economic
conditions and uncertain outlook. However, the Group will maintain its cost-effective structure and focus on keeping its fleet
well-deployed and running efficiently

analYSIS-Small ships to unlock rate boon for bulk owners
Feb 8, 2011 17:32 EST
coal | drybulk | grains | iron ore | shipping
By Krishna N Das and Jonathan Saul

BANGALORE/LONDON, Feb 8 (Reuters) – Dry cargo shippers with smaller vessels are shifting to more-risk, more-reward spot markets, eyeing rising demand for sugar and grains — commodities well suited to versatile supramax and handysize ships.

Ship owners generally prefer long-term charters in a weak market. The Baltic Dry Index <.BADI> o-year lows in recent weeks but confidence has been rocked by South Korean dry bulk group Korea Line Corp <005880.KS> filing for bankruptcy protection, highlighting the risk of charter-party defaults.

“Concerns now persist industry-wide, as speculation grows as to whether faults,” Deutsche Bank analyst Justin Yagerman said.

“Continued charterer defaults could bring into question many companies’ above-market charters.” Flooding in Australia, the world’s biggest coal exporter, and weather-srupted coal shipments and dented sentiment for capesize vessels — the giants of seaborne trade routes, typically hauling 150,000 tonne cargoes such as iron ore and coal.

Demand for grains, though, has soared. Wheat prices in the European Union, the world’s No.2 exporter, a year, aided by a Russian export ban due to drought and strong demand from North Africa and Middle East countries.

Global food prices, which hit their highest level on record last month, is a mounting worry for world leaders. Recent catastrophic weather around the globe could put yet more pressure on the cost of food, an issue that has already helped spark protests across the Middle East. Egypt is the world’s biggest wheat importer.

Eagle Bulk Shipping , which operates supramax vessels that typically have around half the capacity of a capesize, lowing them to haul a wider range of cargoes, has placed half its ships in the spot market.

That strategy has been welcomed by investors, and Eagle Bulk Shipping’s price-to-earnings ratio of almost 35 is the highest among its peers, Thomson Reuters StarMine data shows.

“We prefer smaller vessels due to the more favorable supply dynamics, more diverse cargo loading options, record spot fixture activity for the last five months due to a recovering worldwide economy, and the increasing ton-mile in the grain trade,” FBR analyst Doug Garber said in a note.

Genco Shipping and Trading could be another to gain from a near-term rebound in day rates — the cost of renting a ship by the day — as it has roughly half its 2011 days in open or linked-to-index charters.

Conversely, Diana Shipping , DryShips , Navios Maritime Partners LP and others whose fleets are dominated by bigger ships, have placed more vessels in long-term contracts, hoping for steady returns.

Iron ore and coal are the main drivers of the dry bulk trade, accounting for some two-thirds of demand, but both are highly dependent on China, making the shippers that own bigger vessels more vulnerable to demand swings in the world’s biggest commodity consumer.

Sterne Agee expects Baltic Dry Index spot rates to drop 16 percent this year and 9 percent in 2012, noting these declines will be hardest felt by those owning capesizes, where fleet growth is seen at 17 percent this year and 14 percent in 2012.

For capesizes, the brokerage forecast a 25 percent fall in spot rates this year to below $25,000 a day. Only three years ago, owners of these vessels could charge day rates in excess of $100,000 a day.

Supramax rates are seen dropping about 7 percent to $20,845.

“The largest part of the order book concerns the larger ships, the capes. It is actually the capes that are of a bigger concern to everybody in the industry,” said Michael Bodouroglou, chairman and CEO of Greece’s Paragon Shipping Inc , which has smaller supramax and handymax vessels among its fleet.

“The panamaxes, the supramaxes and in particular the handies I think they will fare a lot better particularly in the second quarter which is the season where the grain trades pick up from South America etc — these are trades which are accommodated in the smaller sizes,” he told Reuters.

The Baltic capesize Index <.BACI> has fallen by two-thirds in the past 3 months to its lowest in more than 2 years. Rates for supramax vessels were faring slightly better, though the Baltic’s supramax index <.BASI> has dropped by a quarter in the last 3 weeks.

“In the next few months, a moderate amount of cargo demand is likely to continue to surface, which is likely to result in supramax and handysize rates remaining at healthy levels,” said Jeffrey Landsberg, managing director of dry bulk consultancy Commodore Research.

“Global grain demand remains strong and will lend support to rates once the South American export season kicks in to full gear.”

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Factors Influencing Baltic Dry Index

The demand for shipping is very elastic and varies with the amount of cargo that is being traded or moved in various markets. On the other side, the supply of cargo ships is generally very tight and inelastic - it takes two years to build a new ship while it is too expensive to take them out of circulation. So marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly.

Commodity Demand
The main drivers of commodities demand are energy needs and industrial production cycle. Strong commodity demand (like from China for example) drives BDI rates higher regardless of the price of commodities themselves.Companies with spot contracts will be willing to pay more in such circumstances.

Fleet Supply
Fleet supply depends on the number of available ships, their capacity and utilization. The major problem with fleet supply is that it is very inelastic in the short term. It takes two years for the ship to be build and it lasts for 25 years afterwards. Old worldwide fleet indicates decreasing short term supply.

Seasonal Pressures
Season also plays a great role in BDI value, since it has impact on demand on one side (cold weather increases the demand for energy related raw materials), and on logistics on the other side (cold weather and ice causes trouble in ports). Mild winters are therefore what transporters are hoping for.

Bunker Fuel Prices
Bunker fuel oil prices, which is used by ship for propulsion and it represents around 30% of operating costs, depend on crude oil prices; the higher they are, the higher BDI value you can expect.

Narrow Shipping Lanes
Narrow lanes, like Panama canals and Suez among four majors for example, present natural limitations in bulk tonnage capacity, since only limited number of ships can pass through the lanes each day.

Market Sentiment
Like with any other markets, market sentiment together with forecasting raw materials demand plays a great role in the BDI value as well.

Port Infrastructure
Each port is limited on its own with actual terminal infrastructure, which is simply representing the cap of ships that can be handled per day.

Labor Relations
The human part of shipping process shouldn't be underestimated. Workforce is the one loading or unloading the ships and work related conflicts around the globe can influence BDI directly.

Piracy
Organized criminal groups are affecting shipping for years and put additional pressure on the value of BDI.

New Shipping Routes
Arctic shipping routes are not distance friendly, but may be economical as well if the oil prices are low.

INVESTMENT IN A JOINT VENTURE COMPANY FOR PROPERTY DEVELOPMENT

http://info.sgx.com/webcoranncatth.nsf/V...A004EA96C/$file/SGAnnouncement13072012Final.pdf?openelement [Announcement]

It is interesting to note that this dry bulk shipping company has diversified into the property development sector. It has disposed numerous vessels and reduced its fleet size to 3 vessels ie 2 x supramax vessel and 1 x panamax vessel.

(Not Vested)

property crash in CHina coming? how?

(14-07-2012, 02:46 PM)Nick Wrote: INVESTMENT IN A JOINT VENTURE COMPANY FOR PROPERTY DEVELOPMENT

http://info.sgx.com/webcoranncatth.nsf/V...A004EA96C/$file/SGAnnouncement13072012Final.pdf?openelement [Announcement]

It is interesting to note that this dry bulk shipping company has diversified into the property development sector. It has disposed numerous vessels and reduced its fleet size to 3 vessels ie 2 x supramax vessel and 1 x panamax vessel.

(Not Vested)

(14-07-2012, 03:02 PM)Curiousparty Wrote: property crash in CHina coming? how?

(14-07-2012, 02:46 PM)Nick Wrote: INVESTMENT IN A JOINT VENTURE COMPANY FOR PROPERTY DEVELOPMENT

http://info.sgx.com/webcoranncatth.nsf/V...A004EA96C/$file/SGAnnouncement13072012Final.pdf?openelement [Announcement]

It is interesting to note that this dry bulk shipping company has diversified into the property development sector. It has disposed numerous vessels and reduced its fleet size to 3 vessels ie 2 x supramax vessel and 1 x panamax vessel.

(Not Vested)

It is a local property development JV:

Quote:The Land is situated in Singapore. The Land covers an area of 4,850.5sm or 54,210.8 sf. The plot ratio is 3.5. The permissible gross floor area is 16,977sm or 182,740 sf. Allowable development is residential. The tender subscribed by Santarli Corp. in the sum of S$114,800,000 (approximately US$90,692,000) for the Land has been accepted by Urban Redevelopment Authority on 4 July 2012. JV Company intends to construct a 18-storey and a 5-storey condominium with approximately 242 residential units on the Land. The Land is near to Potong Pasir MRT station.

(14-07-2012, 02:46 PM)Nick Wrote: INVESTMENT IN A JOINT VENTURE COMPANY FOR PROPERTY DEVELOPMENT
http://info.sgx.com/webcoranncatth.nsf/V...A004EA96C/$file/SGAnnouncement13072012Final.pdf?openelement [Announcement]
It is interesting to note that this dry bulk shipping company has diversified into the property development sector. It has disposed numerous vessels and reduced its fleet size to 3 vessels ie 2 x supramax vessel and 1 x panamax vessel.
(Not Vested)

it is also interesting to note that while banks in singapore are prohibited (in cetain extent) to invest/buy property development/investment properties, we see a lot of other listed companies (in other industries) like SPH , and now this courage marine, pumping investment money/stakes into the property arena. sometimes i just wonder, should the authorities put a cap on this insanity fueling inflation further

in sg, collecting rentals from properties are easy-money compared to renting out ships! :O

Just an observation of mine - somehow when things are booming everyone wants a piece of it.

When shipping was booming back in 2007, all you needed to do was to throw a couple of ships/vessels together and sit back and get rich.

Now when shipping is in the dumps, I guess all one needs to do is throw a couple of properties together, sit back and wait to get rich.

Most companies will flow to where the easy money appears to be, but when too much of it happens, it's not easy money any longer!