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TOKYO—Masayuki Kubota, who writes investment books and
oversees $1.7 billion at Daiwa SB Investments Ltd. in
Tokyo, isn’t buying Mitsui O.S.K. Lines Ltd.’s forecast
for the slowest profit growth in seven years.
Instead,
the 46-year-old fund manager says he bought shares of
the world’s largest merchant-fleet operator on a bet
that the Tokyo-based company has underestimated the
impact of surging demand from China for imports of
iron-ore and coal to make steel for building cars, ships
and factories.
“Mitsui’s assumptions for shipping rates are too
conservative,” said Kubota, who predicts the company
will raise its profit forecast in the next six months.
“Mitsui O.S.K.’s stock is oversold.”
The
shipping line’s shares plunged 47 percent from a record
high on October 15 to a 13-month low in
Tokyo trading in January, as falling bulk-cargo rates undercut
profit expectations. That’s when Kubota bought the
stock, he said, and the stock began rebounding along
with shipping charges. Mitsui O.S.K. derives 53 percent
of revenue and 92 percent of profit from bulk shipping.
The
company is priced at 10 times estimated earnings for the
fiscal year ending next March, about half the valuation
of the Nikkei 225 Stock Average.
Nippon
Yusen K.K., Japan’s largest shipping line by sales, is
valued at 11 times estimated earnings, and both shipping
lines pay dividend yields of 1.9 percent or more,
compared with the 1.5 percent average for the Nikkei.
“Japanese shipping lines are not expensive in terms of
valuation and dividend yield,” said Yoji Takeda, who
manages about $800 million as head of the Asian
equity-management team at RBC Investment Management
(Asia) Ltd. in Hong Kong. Takeda can’t comment on
individual companies or holdings, he said.
Mitsui
O.S.K. predicted on April 25 that profit would gain 5.1
percent in the year ending next March as demand for
shipping goods to Europe increases.
Mitsui
O.S.K. also forecasts a bigger sales increase than
Nippon Yusen and Kawasaki Kisen Kaisha Ltd., Japan’s
third-largest shipper, for the year ending next March.
Revenue will increase 5.4 percent to ¥2.05 trillion
($19.7 billion), Mitsui O.S.K. said last month.
The
shares have gained 16 percent so far in 2008 and may
reach ¥2,100 in the next six months, according to Takuya
Osaka, an analyst at Morgan Stanley Japan Securities Co.
in
Tokyo.
Nippon
Yusen rose as much as 1.5 percent and Kawasaki Kisen as
much as 1.8 percent.
“If the
Nikkei goes up then Mitsui O.S.K. will outperform,” said
Kubota, whose latest book, Kabushiki Toshiryoku
Toreningu, or “Stock Investment Training,” reached the
No. 2 bestseller spot at Yaesu Book Center in Tokyo’s
business district in February. “The world economy will
not collapse. Rates for transporting commodities are
very profitable.”
Kubota’s
books haven’t been published in English.
Eleven
of 13 analysts tracked by Bloomberg who follow Mitsui
O.S.K. recommend buying the stock. One says to hold and
another recommends selling.
The
Baltic Dry Index, the benchmark for commodity-shipping
rates, is up 72 percent from a year ago. The charter
rate for the largest iron-ore carrying ship rose to a
record $211,640 a day on May 16, according to
London-based Baltic Exchange Ltd.
That’s
above the $110,000 Mitsui O.S.K. had predicted for the
22 capesize ships that it rents out at daily rates. As a
result, first-half operating profit will exceed its
forecast by “several billion yen,” Kenichi Yonetani, a
managing executive officer, said in an interview on
Monday.
Mitsui
O.S.K. plans to increase its fleet 40 percent to 1,200
ships over the next five years. That would exceed growth
planned by Nippon Yusen and Kawasaki Kisen.
The
company said last week it would add 53 iron-ore ships
over the next six years. It operates 125 now, plans to
retire some older vessels and will have 160 carriers by
the end of March 2014.
In
December, Mitsui O.S.K. launched the Brasil Maru, one of
the world’s largest iron-ore carriers, to ply the
Brazil-Japan route. The ship, weighing 327,180 metric
tons, is 340 meters, or the length of three US football
fields, and 60 meters across.
While
the Brazil run takes about 30 days, ships at Australian
ports may have to wait in line two weeks to load coal
before making the 9-day trip to
China.
The lack of delays in South American ports has made the
longer trip more cost-competitive.
“Demand
for iron ore and coal remain strong and are increasingly
coming from Brazil, so it’s taking longer, and requiring
a greater number of ships, to transport,” said RBC’s
Takeda. (Bloomberg) |
