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雷达卡
Risk of double dip ahead
• We expect prices of shipping stocks to face a risk of
double dipping in the 4Q on ebbing seasonal demand.
Stocks’ value will fall below mid-cycle level again.
• The sector’s deep loss in 2Q has dampened market
sentiment and capped the liquidity-driven rally since
March 09. It is time to consider an exit strategy.
• In view of the high level of idle capacity and newbuilds
backlog, the green shoot of sector recovery remain
very fragile.
• CSCL and China COSCO are the most overvalued
counters in the sector. Pair trade: Long OOIL and Short
CSCL; Long PBS and Short China COSCO.
Bulk carriers have recurred the downtrend. After the
liquidity-driven rally between March-May, the Baltic Dry
Index has pulled back c. 44% since June, due to the
slowdown of China’s re-stocking of iron ores amid the high
level of China’s port iron ores stockpiles and weakened
domestic steel prices in recent weeks. While the Freight
Forward Agreement (FFA) contract rates until 2010 are still
trading at 15-25% below the spot rate, the recovery of dry
bulk-shipping market should be remote.
Container shipping will face the risk of second dip in
4Q. Despite the possible seasonal pick up of demand and
freight rates, the over-capacity problem will limit the
recovery in the container shipping sector in 2H09. Given
the 10% idle fleet and a high 34% newbuilds order to
existing capacity ratio, we believe the container shipping
market recovery will lag at least 6-12 months behind the
recovery in China’s exports. We expect the container ships
to face a risk of double dipping, after the ebbing of
seasonal demand in 4Q09. Moreover, the revival of trade
protectionism will also cast a shadow on the recovery of
world trade.
Double dipping will exert pressure to mid-cycle value.
While the FFA market waves a warning signal of lower BDI
ahead, we also expect the container shipping freight rates
recovery will lose steam again in 4Q. In this regard, the risk
of a second-dip is high for shipping stocks before mid-
2010. This will exert pressure for shipping companies’
existing mid-cycle values. In the sector, CSCL and China
COSCO are over-valued stocks given their mid-to-up cycle
P/B valuations. We comparatively like OOIL and PBS in the
sector, as both are better managed shipping companies
with relatively attractive value. We upgrade CSD to FV.
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