Pacific Basin Betting on Green Methanol for Future Growth

Overview

Pacific Basin is a leading player in the Handysize / Supramax segment of the dry bulk shipping market. Having held the stock for fifteen years, I have grown increasingly confident in the management of the company for the following reasons:

• After an earlier misguided attempt to diversify into other shipping sectors after the dry bulk boom of 2007-2008, the Company is now laser-focused on its strategy to specialise in minor bulks.
• During the more recent spike in shipping rates that followed the pandemic, the Company showed much better discipline. Windfall profits were used to bring net debt to zero while still investing sensibly in the owned fleet, with a large portion also returned to shareholders through special dividends (and later share buybacks when the share price weakened).
• The Company is moving early to navigate new emissions rules, and has ordered 4 dual-fuel ships that will be able to run on green methanol. They have also partnered with the Hong Kong and China Gas Company to provide fuel that meets international certification requirements.

Valuation

• At the time of writing, the stock has persistently traded well below its net book value per share of around HK$2.77.
• Given the company's good management, financial health, and long-run potential in the event of a sustained increase in shipping rates, a slight premium to net book value is justified in my opinion.

Potential catalysts

• In March 2025, The Caravel Group disclosed a 7.5% stake in Pacific Basin. This diversified conglomerate controlled by billionaire Harindarpal Banga includes Caravel Maritime, which is heavily involved in dry bulk cargo. This stake quickly increased in size, reaching over 16% by the end of July 2025. A press release was issued denying any intention to stage a takeover, but further purchasing of the Company's shares on the open market by Caravel could drive the price higher.
• There have been limited newbuilding orders for Handysize and Supramax dry bulk carriers in recent years, mainly due to shipyard capacity being taken up by other ship categories (e.g. containerships and tankers). If demand increases, rates could be sustained at elevated levels for an extended period, especially if older ships are scrapped due to non-compliance with stricter emissions standards.

Risks

• The market for dry bulk shipping is notoriously cyclical, and in an extended downturn returns to shareholders will be poor.
• There is significant strategic and execution risk in being a first-mover in switching to green methanol. If done poorly, it could result in losses for the Company.
• If the Caravel Group eventually decides to pursue a takeover of Pacific Basin and market sentiment remains subdued, the offer price may not reflect the actual value and potential of the Company.

Conclusion

Pacific Basin offers potentially outsized rewards to long-term investors. The Company's management is focused on the segment of the market where they have a competitive advantage, growing and modernising their owned fleet of Handysize and Supermax dry bunkers in a disciplined manner. However, given the unpredictability of the market, it could take many years for such rewards to materialise.