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led by mainland stocks
But with profit levels muted and fuel
risks rising, momentum is stalling
Key Overweight stocks: COSCO Pacific,
Thai Airways; Cathay; key Underweight
(V) stocks: CSCL and China COSCO
Confidence picks up and share prices rebound. As we
expected, passenger volumes have picked up, underlying air
cargo volumes have been good and container rates have risen
since early December (see our last Transport Indicators,
4 December). Confidence also improved as PMIs rose, and the
transport sector rebounded with the best performing stocks
being in mainland China. The transport sector’s PB levels still
have 20-50% upside to the 2010 peaks. With growth starting to
recover, the question: is there plenty of scope to buy?
Cool your jets. The 2010 valuation peaks were driven by
record earnings and turbo-charged increase in traffic volumes
and rates. In this cycle, we expect the pace of recovery to be
tepid. Our conversations with industry participants and leading
indicators provide little evidence that the cycle will accelerate.
Finally, fuel prices are reaching uncomfortable levels.
Air cargo tends to lead the sector and near-term
prospects are uncertain. January volumes should pick up
y-o-y due to this year’s later Lunar New Year, but there are
few underlying signs of a strong rebound. Premium travel
also remains muted. There are two positives. First, assisted by
the B787 grounding, long-haul capacity is constrained.
Second, the sector’s 12-month forward PB of 1.1x is still at
the low end of the 1.1-1.3x range in 2004-06, arguably a
similar period for airline performance. Cathay Pacific (OW,
an Asia Super Ten portfolio stock), Thai Airways (OW) and
China Southern (OW) are our key picks.
The shipping sector has a mixed outlook and is nearing its
2010 PB peak. Our key sells are CSCL and China COSCO,
both UW(V). Container volumes remain soft and we expect
freight rates to fall as we enter the low season. 2013 capacity
additions in Asia-Europe will be substantial and we expect the
impact to cascade to the transpacific route. Ports share the same
lacklustre volume outlook but avoid the pricing risks and
valuations are attractive. Our pick is COSCO Pacific (OW).
TransportIndicators：Atriskofstalling（201301290002GH00N5）.pdf
(424.74 KB)
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