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We expect liner rates to collapse y-o-y
in 2009 due to severe oversupply
We anticipate OOIL and NOL to incur
losses; initiate coverage with UW(V)
Prefer dry bulk shippers on better
demand outlook; OW(V) Pacific Basin
and Sinotrans Shipping
Tough times. We expect liner rates to collapse y-o-y in
2009 as supply exceeds demand growth by 12%. Liner
operators will have to slash costs to survive and while Orient
Overseas International (OIL) is better placed than Neptune
Orient (NOL), we anticipate both will incur losses in FY09
and FY10 on significantly lower rates. Our earnings
estimates are significantly more pessimistic than consensus,
especially for 2009. We initiate coverage on OOIL and NOL
with Underweight (V) ratings.
Prefer dry bulk on better demand outlook. We expect dry
bulk rates to remain low over 2009-10 as new capacity
enters the market. However, oversupply in 2010 may be
moderated by a pick-up in commodity demand as China
implements its RMB4trn stimulus plan. Also, more dry bulk
vessels than container ships are likely to be scrapped. We are
Overweight (V) on both Pacific Basin, which has a strong
defensive position, and Sinotrans Shipping, which is trading
below net cash position.
Valuation and risks. We value container shippers based on
one-year forward price to book and dry bulk shippers using
replacement value per share. Risks to rating include faster
than expected recovery of demand and higher than expected
scrapping and/or cancellation of new orders.
Investment summary
We expect liner rates to collapse y-o-y in 2009 due to massive
over supply
We anticipate OOIL and NOL to incur losses in 2009-10 and
initiate coverage on both stocks with Underweight (V) ratings
We prefer dry bulk shippers due to better demand outlook;
OW(V) Pacific Basin and Sinotrans Shipping
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