Investment outlook for the medium range tanker segment from the perspective of a ship financier from 2011 to 2015

• Main Author: Han, Peinan.
• Other Authors: School of Civil and Environmental Engineering
• Format: Final Year Project
• Language: English
• Published: 2011
• Subjects: DRNTU::Engineering::Maritime studies::Maritime management and business
• Online Access: http://hdl.handle.net/10356/46469
• Institution: Nanyang Technological University

This research aims to provide the freight market outlook for MR product tanker in the East of Suez from 2011 to 2015 and determine whether investors should invest in MR tanker shipping equities. The research first examined the investment potential of MR tanker operating companies in the past by comparing their past return on equity (ROE) with shipping industry average and the companies required rate of return against S&P 500 calculated using CAPM model. The results indicate that MR tanker equities have good investment potential and the sector is worth to be investigated in details for investment. To investigate MR tanker sector’s investment potential in detail, a discounted cash flow (DCF) model need to be performed to determine the Net Present Value (NPV) of different investments scenarios for MR shipping companies. SO the NPVs can then be used to indicate the companies’ ability to generate returns and their investment potential. To forecast future cash flow (ship owners’ freight earnings) to be used in the DCF model, the fundamental supply and demand factors affecting MR tanker companies’ freight earnings are analyzed. The important supply and demand factors are identified using hypothesis testing method and then used to deduce the trends of demand and supply in 2011-2015.Based on the forecasted trends, the future freight earnings of MR tankers in the next 5 years is forecast to be between USD5,000 and USD15,000/day. Finally sensitivity analysis of NPV against freight earnings and Weighed Average Cost of Capital (WACC) are performed for scenarios including buying a new build ship, buying a second-hand ships and charter in ships. The sensitivity analysis indicates that MR tanker operating companies has low possibility to generate positive returns in all scenarios, Thus the MR tanker equities have low investment potential.