The share will only rise once the BDI recovers or if their earnings can remain visible for the next few quarters. It is currently trading at PE 6.5 based on 2010 EPS. I cannot predict the share price this month, 6 months of in a year time. But I can predict that the demand for coal and iron ore will increase from 1H 2010 onwards. When that happens, freight rates will naturally increase and hence Mercator's earnings. I also betting on the success of the Mercator's Supply Chain Model = Mines (owned by Mercator India) - Sea Transportation (MLS) - Port - Land Transportation (Mercator India) - Client.

NOL on the other hand is doing container shipping. 2 different industries. Cannot compare between them.

MLS - lack of coverage by int'l brokerage. Compare to NOL, Goldman Sachs target price = $2.20.

I would steer clear of all ship trusts in SGX due to both internal and external factors.

External Factors - 

Shipping is badly hit for two reasons - a) Drop in demand for goods and commodities and b) over-capacity of ships (and this will be worsen once the book orders made in 2006/07 for 2009-2011 are fulfilled). This has led to a drastic fall in freight rates. As such, any vessels leased out will be rented out at a extremely low and uneconomical rate. This means that any new acquisitions will result in low-margins contracts for the trust and hence lower distribution income. Moreover, considering that ships are not 'free-hold' but will 'expire' within 25-30 years, any uneconomical contracts will hit the trust really hard. Moreover, if freight rates continue to drop, their clients might choose to disregard their contract obligations and return the vessel back to the trust. This has already happened to Rickmers.

Internal Factors -

Their high debt levels make any investment in a trust dangerous. This means that the trust has to turn to either a dilutive rights or placement issue or turn to the banks for a refinance of their loans. The former will hurt the minority shareholders while the latter (if successful in teh credit crunch climate) will result in higher interest expense and hence lower distributable income. Most of their growths are fueled by debt which is extremely expensive in light of the credit crunch. Rickmers is a terrible state at the moment and if they can't refinance their debt soon, they will go bust within the next 6 months. PSL is quite conservative and FSL debts only expire in 2012 but debts are very expensive (their proposed Notes issue had an interest of 12%). So I don't expect much growth in this sector.

Shipping -

There are only 2 type of shipping sectors - dry bulk and container shipping. The former deals with the transport of commodities such as iron ore, coal, grain, cotton, wood etc while the latter deals with end-products ie cars, equipments, electronic goods, clothes etc. If you wish to invest in dry bulk, the counters are Courage Marine (purely BDI play since most of their contracts are spot-based), Mercator (long term contract based hence their visible earnings) and STX PO (HUGE korean company but very low liquidity in SGX since there is only 9mil shares here). If you wish to invest in container shipping, NOL is your only option.

Hope that helps!

Alot of ppl are predicting a recovering in the BDI sometime in Jan. Currently its down as inventory levels in China are high. However Mercator derives 70% of its revenues from long term charters as opposed to spot rates. As a result, it is shielded by the volatility of the index to a large degree. The problem is that it chartered-in 3 post-panamax vessels - secured a 3 year contract for one with Cosco, 1 more will be coming in next year and the other one came in Oct 09 but no news of any contract. Since the BDI rate is low, any contract wins now will have very low margins. 

For me, I think the 2 post-panamaxes will be used to ship coal from Mercator's mines in Indonesia. 

New delivery of a chartered-in Post-Panamax vessel.

Mercator announced at mid-day trading break that it has taken delivery of its first Post-Panamax vessel, named Chaitali Prem. This is a gearless dry bulk carrier with a 93,270 dwt capacity.

Chaitali Prem's earnings contribution has been factored in our estimates.

This Post-Panamax vessel will be chartered out to Refined Success Limited, a subsidiary of Cosco (HK) Shipping Co., Ltd, for 35-37 months at time charter rate of US$39,500 per day. The chartered-in cost to Mercator is US$25,300 per day. Hence, Mercator is expected to make a profit from this deal, which is already captured in our earnings estimates.

Chartered-out contract for Chaitali Prem was secured in March 2008

We note that the long-term time charter contract for Chaitali Prem was secured back in March 2008, way before the dry bulk freight plunges in 4Q08. Hence, the chartered-out rates for Chaitali Prem is not reflective of current freight rates.

Two more Post-Panamax vessels with no chartered-out contracts.

Our concerns remain on the expected delivery of another chartered-in Post-Panamax vessel by Mercator in 2009, and one in 2010. These two vessels will be bareboat chartered in at US$25,300-27,000 per day each, and Mercator has yet to secure back-to-back chartered-out contracts for them. We believe that a similar 3-year time charter for these two yet-to-bedelivered Post-Panamax vessels would likely fetch day rates at below US$20,000, which would be negative to Mercator should the group honors its contractual obligations.

No change to our earnings estimates and target price.

We expect Mercator to face pressure from the still depressed freight rates for newly delivered vessels that are without chartered-out contracts, and contract renewals for existing vessels. Our target price for Mercator is S$0.26, using 0.6x Price to Book ratio. Maintain SELL on Mercator, due to the lack of price catalysts and a still vulnerable shipping market.

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If they control coal mines in africa and indonesia why have they not already used mercator s'pore to ship the coal.

any way does mercator only ship coal, what about other bulky materials, such as copper, cotton or grain. there is a stigma on coal, it is a dirty fuel, wouldnt demand for coal fall.

is this why mercator share price is low. Also mercator is an indian company, singapore is a majority Chinese country.

Investors will not have a keen interest investing in Indian businesses because of traditional prejudices against indians.