Huachuang Securities: Maintains Buy rating for The Pacific Shipping (02343) with a target price of HKD 5.05.

Huachuang Securities released a research report stating that The Pacific Shipping (02343) is a financially stable and counter-cyclical small bulk shipping leading owner, expected to benefit from the rising demand in the dry bulk market. Given the better-than-expected performance in the dry bulk sector, the company has raised its forecast for 2026-2027 parent net profit to $255 million and $273 million respectively, and has added a new forecast for the 2028 parent net profit of $312 million, corresponding to EPS of $0.05, $0.05, and $0.06, with PE ratios of 10, 9, and 8 times. Assuming a dividend payout ratio of 100%, the dividend yields for 2026-2028 would be 9.9%, 10.6%, and 12.1% respectively. The target price for the company is set at HKD 5.05, indicating a potential upside of 29% from the current price, and maintains a "Buy" rating. Huachuang Securities' main points are as follows: The company will release its mid-year report for 2026. 1. Performance: In H1 2026, revenue reached $1.11 billion, an increase of 8.5% year-on-year; net profit was $105 million, a year-on-year increase of 310%. By business segment, 1) In the core business, the average time charter rates for small and ultra-small vessels were $14,150 and $16,550 per day, representing year-on-year growth of 28.5% and 35.3%, outperforming the index by 16% and 17%; 2) Operational performance showed an average daily profit of $1,060, a year-on-year increase of 49%. 2. Dividends and buybacks: The company announced an interim dividend of HKD 0.155 per share, with a payout ratio reaching 100% (excluding revenue from ship sales), and completed a stock buyback of $3.5 million in the first half of the year. 3. Contracting Situation in Q3 2026: In Q3 2026, the contracting ratios for small and ultra-small vessels in the core business were 78% and 82% respectively, with average daily charter rates further increased to $15,810 and $18,680 per day compared to the averages in the first half of the year. Overall, the dry bulk industry showed a high level of activity in the first half of the year, with an average BDI of 2,347 points in H1 2026, a year-on-year increase of 82%; the average BDI in Q2 2026 was 2,751 points, a year-on-year increase of 87%, and up 41% quarter-on-quarter. Since April, the BDI index has accelerated upward, breaking the 3,000-point mark in May. On the cargo volume side, iron ore transportation has been supported by demand for long-distance routes, while coal transportation demand has been boosted by geopolitical factors, and cargoes like bauxite and grain have shown strong performance. The company achieved growth that exceeded expectations, with the core fleet's TCE continuing to outperform the market. At the same time, the company previously implemented a long-term dividend policy with a minimum payout ratio of 50%. Starting in 2026, this policy has been revised to: a payout ratio of at least 50%, which can be increased to a maximum of 100% if net cash at the end of the year is positive. The company has increased its payout ratio to 100% in the first half of 2026, making the dividend yield attractive. Continuing to look favorably at the upside potential in the dry bulk market. With limited supply growth, Clarksons projects the industry's capacity growth rates for 2026 and 2027 to be 3.8% and 4.2% respectively, while the growth rate for Capesize vessels is only 2.4% and 4.2%. Under stricter environmental policies, the speed of bulk carriers continues to decline, and the increase in the number of special inspection vessels impacts effective capacity. The commencement of the Simandou iron ore project is a key catalyst, as it is a super iron ore project with deep involvement from Chinese enterprises and is expected to disrupt the existing supply dominance of Australia and Brazil. Attention is also needed on the potential impacts of El Nio extreme weather, which could lead to a drop in water levels of the Panama Canal, affecting traffic efficiency and potentially rerouting. Risk warning: Macroeconomic downturn, excess capacity, significant oil price fluctuations, geopolitical risks, etc.