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Thoresen Thai can ride out shipping glut

Back May 20, 2009

By Ploy Chitsomboon

BANGKOK, May 20 (Reuters)

Thoresen Thai Agencies , Thailand's top dry bulk shipper, said it could ride out the surfeit of ships in the sector over the next few years and it expects stronger third-quarter results despite the global crisis.

The company would soon announce a foreign joint venture investment in a non-shipping business, mainly to diversify and to help mitigate risks when a glut of new ships hit the water, Managing Director Chandchutha Chandratat told Reuters.

"We're actually looking at one or two deals overseas right now," Chandchutha said in an interview. "We're in the final round of talks and, hopefully, in one to two months we should be able to announce it," he added.

Thoresen, which owns 40 dry bulk vessels, would sell at least another 2-3 ageing ships in this business year, which ends on Sept. 30, on top of the four sold already in the first half to stay competitive, Chandchutha said.

It has no plans to purchase any vessels for now, he said, but one new ship is to be delivered from Japan in January 2010.

"The impact (of the economic slowdown) has obviously hit everybody in this business, but what we're trying to do is to match our supply according to the demand in the market," Chandchutha added.

The company mainly ships steel, coal, grain and other agricultural products.

The Baltic Exchange's main sea freight index <.BADI>, which tracks rates to ship dry commodities like iron ore, grain and coal, has picked up to above 2,000 after plunging more than 90 percent from last May's peak of 11,793 to 774 in December.

On Tuesday, the Baltic Dry Index (BDI) struck a 2009 high, with activity driven by imports into China. [ID:nWLA4695]

But with a large supply of shipping capacity and seasonal demand risks that put pressure on the BDI, Chandchutha expects the outlook to be weak for another two years at least.

BRIGHTER Q3

Shippers around the world have suffered as U.S. and European consumers cut spending on Asian goods, resulting in a drop in profits, including at China COSCO <1919.HK>, the world's largest dry bulk shipper.

Thoresen Thai posted a record high net profit of 8.78 billion baht ($255 million) last year, and it would be impossible to see such a dramatic performance in 2009, Chandchutha said .

Last Friday, Thoresen posted a 95 percent drop in earnings to 99 million baht ($2.9 million) in the second quarter to March 31, dragging its earnings for the first half of this year down to 996.3 million, a 79 percent plunge from a year earlier.

However, Thoresen, whose local rivals include Precious Shipping and Regional Container >, expects the recent rise in freight rates and a return to profit at an overseas subsidiary to lift its third-quarter results.

"Given the recent recovery in global freight rates, I do believe that our Q3 will actually be better than Q2," Chandchutha said.

"Mermaid Maritime should also do reasonably well with the utilisation rate of the sub-sea engineering division picking up. We had a bad monsoon season in the past quarter," Chandchutha said, referring to a quarterly net loss at its 58 percent owned Singapore-listed Mermaid Maritime

The unit contributes about 22 percent of its revenue.

Singapore's Mermaid, which operates offshore services and a drilling business, would also see a surge in both net profit and revenue next year due to the delivery of three vessels expected within the next seven months, Chandchutha said.

Shares in Thoresen, valued at $419 million on the Thai bourse , are trading at 7.16 times forecast 2009 earnings, below the 20.6 times for foreign player Sinotrans Shipping and other dry bulk shippers in Asia.

Hong Kong-listed Pacific Basin is trading at 14.77 times forecast earnings and China COSCO at 13.45 times.

At the midday break, TTA shares were up almost 2 percent at 20.80 baht, outperforming a 0.9 percent rise in the main index.

($1 = 34.39 Baht)

(Editing by Alan Raybould)