The effectiveness of vessel valuation methodologies in the Supramax bulk carrier (SUPRAS) segment

• Main Author: Lim, Jun Ting
• Other Authors: -
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2019
• Subjects: Engineering::Maritime studies
• Online Access: https://hdl.handle.net/10356/136546
• Institution: Nanyang Technological University

This research aims to evaluate the effectiveness of vessel valuation methodologies in the Supramax bulk carrier segment. This paper commenced by describing the different vessel valuation methodologies and specifically scoping this research based on the use of the market approach. This paper then focused on utilizing the DuPont analysis for analyzing the past financial performances of dry bulk companies as well as the breakeven analysis to assess historical market data to evaluate the effectiveness of the market approach from the year 2008 to 2018. The findings from the DuPont analysis showed that the financial performance of dry bulk companies between 2008 and 2018 was poor due to recording negative Return on Equity (ROE) for the past 8 years. Although ROE comprises of Net Profit Margin (NPM), Total Asset Turnover (TAT) and Equity Multiplier (EM), the analysis showed that ROE was mainly influenced by the NPM. As negative NPM was the result of the decline in freight rates, it showed that the market approach based the intrinsic value of a vessel using the average TCE levels seen before 2009. The findings from the breakeven analysis supported the earlier results. Out of 33 experiments conducted, only 5 generated positive results as historical freight rates were unable to match the breakeven rate required for majority of the vessel purchases made between 2008 and 2018. This was partly due to the strong relative demand for vessel purchases during the initial years despite the deteriorating freight rates and unhealthy DWT growth in the Supramax sector. Overall, the research concludes that the use of the market approach is ineffective and led to overpriced vessels in the Spramax bulk carrier segment. However, it was also due to bad investment decisions on the part of shipowners and shipping companies as the decline in freight rates did not deter them from purchasing vessels.