Daiwa raises the target price of PACIFIC BASIN to 3 yuan, and China's port surcharges may drive up dry bulk freight rates

Daiwa published a research report indicating that Pacific Basin (02343.HK) announced its operational data for the third quarter of 2025 after the market closed last Thursday and held an analyst conference call. The main highlights for the third quarter of this year include that the company's Handysize dry bulk carriers' average daily net charter rate (TCE) decreased by 15% year-on-year to USD 11,680 per day, while the Supramax increased by 10% year-on-year to USD 13,410 per day.

Daiwa is optimistic about the company's Handysize dry bulk carriers and Supramax vessels, expecting the average daily net charter rates to increase to USD 12,380 and USD 14,060 per day, respectively, in the fourth quarter of 2025 (with 72% and 87% of operational days already locked in); the demand for minor bulk and grain transportation improved in the first nine months of 2025, increasing by 4% and decreasing by 9% year-on-year (compared to a year-on-year increase of 3% and a decrease of 13% in the first half of 2025). For 2026, only 8% and 24% of operational day contracts for Handysize dry bulk carriers and Supramax vessels are locked in, with corresponding average daily net charter rates of USD 9,790 and USD 13,200.

Daiwa stated that China announced an increase in port fees for relevant U.S. vessels on October 10, believing that the dry bulk market will face the greatest potential impact from the increase in port fees in China, as China accounted for 40% of global dry bulk imports in 2024 (the scope of affected vessels has not been clarified due to the ambiguous definition of relevant U.S. vessels). Overall, Daiwa views the increase in Chinese port fees as a positive driving factor for rising dry bulk freight rates and recognizes the company's proactive approach in responding to an uncertain operational environment.

Daiwa raised its earnings per share forecast for Pacific Basin for the next two years by 5% to 13%, reiterating a "Buy" rating due to low valuations and ongoing share buybacks; based on a price-to-book ratio of 1 times for the next two years (originally 0.9 times), the 12-month target price was raised to HKD 3, up from the original target price of HKD 2.65