Executive summary
Freight rates forecast
We lower our 2013 BDI forecast from 1,500 to 1,300 on the back of lower-thanexpected
2012 realized freight rates, implying a 41% YoY increase in 2013. However,
we believe the slow recovery in demand, high deliveries and the large existing fleet
are the key overhangs to the industry that will give rise to volatility in freight rates
throughout the year.
We remain negative on the fundamentals for container shipping in 2013F and expect
container shipping spot freight rates to fall 12% YoY in 2013 on stagnant demand
growth and high vessel deliveries. Container shipping overcapacity will deteriorate in
2013F, with supply surplus up from 1% in 2012 to 3% in 2013F.
Prefer dry-bulk over container
We prefer dry-bulk shipping over 12 months given the improving demand-supply
outlook for the industry. However, we anticipate a slower-than-expected recovery in
demand and high volatility in freight rates.
Valuation
We believe the recent rally in shipping stocks is overdone and while we acknowledge
the resurging demand taking place, especially in China, we expect long-term growth
to be slower than last year and point out that both container shipping and bulk
shipping are still in oversupply, so any valuation that is above the mid-cycle valuation
multiple is simply not justified, in our view. We therefore maintain our earnings
forecasts for all the shipping companies under our coverage. We upgrade our price
target for CSD (1138 HK) from HK$3.24 to HK$4.10 and maintain our Underperform
rating on the shares, taking into account the company’s improved earnings and
China’s recovering commodity demand.