20150925-高盛-Asia_Pacific_Transportation-Shipping-Still_prefer_container_over_dry_bulk-Upgrade_NOL_to_Buy_CSD__H__to_Buy_on_tanker_exposure_55页_1mb

Asia Pacific Shipping Market Summary

Core Content

This document provides an equity research analysis of the Asia Pacific shipping sector, with a focus on container and dry bulk shipping. It outlines the investment thesis, key ratings, and forecasts for various shipping companies, emphasizing the preference for container shipping over dry bulk due to more favorable supply-demand dynamics and industry structure. The report also addresses investor concerns related to mega-ship orders, port congestion, slow-steaming, and trade growth, while highlighting valuation metrics and potential catalysts for stock performance.

Main Points

Container Shipping Preference

• Industry Outlook: The container shipping sector is favored over dry bulk due to a more positive supply-demand outlook, a smaller new vessel orderbook, and improving industry structure with expanded alliances.
• 2016E Expectations: The report anticipates above mid-cycle margins and cash returns for Asia liners in 2016E, driven by record-low vessel deliveries.
• Transpacific Focus: Carriers with significant exposure to the Transpacific trade are highlighted as key beneficiaries, with less exposure to the challenging Asia-Europe trade.
• Key Companies:
  • OOIL (CL-Buy): Maintained as the top pick with a 12-month target price of HK$67.00, and a strong balance sheet (2015E: 30% net debt/equity).
  • NOL (Buy): Upgraded to Buy with a target price of S$1.30, due to its strong Transpacific exposure (c.50% of 2015E revenue) and improved balance sheet.
  • Evergreen (Buy): Maintained as a Buy with a target price of NT$25.00, due to its >40% exposure to the Transpacific trade and expected ROE of 13% in 2016E.
  • CSD (H) (Buy): Upgraded to Buy with a target price of HK$6.20, due to its exposure to tanker rates and long-term contracts in iron ore and domestic oil.

Dry Bulk Shipping Outlook

• BDI at 30-Year Low: The Baltic Dry Index (BDI) is at a 30-year low, with rates below cash cost.
• Slow Recovery: While there may be a pick-up in 2H15, the recovery is expected to be slow due to structurally weaker demand, a large vessel orderbook, and ample shipyard capacity.
• Forecasted BDI: Cut 2015E BDI by 41% to 908, and lowered 2016E and 2017E BDI by 17% and 11% respectively, implying minimal returns for the dry bulk sector.

Tanker Segment

• VLCC Rates: Expected to remain strong in 2015E due to lower oil prices and increased crude trade volumes, particularly to China.
• CSD (H) Exposure: CSD (H) has significant tanker exposure (50% of 2015E revenue), which is expected to benefit from rising crude volumes.

Valuation and Performance Metrics

• Valuation Metrics: The report uses the Director's Cut methodology to derive target prices, considering EV/GCI, P/B, and other multiples.
• ROE Sensitivity: Companies like NOL and OOIL have higher ROE sensitivity due to their exposure to margin improvements.
• Stock Valuation:
  • OOIL is trading at 0.7X 2015E P/B, the lowest in the industry.
  • NOL is trading at 0.66X 2015E P/B, with a target of 0.92X.
  • CSD (H) is trading at 0.63X P/B, with a target of 1.1X.
  • Evergreen is trading at 1.31X P/B, with a target of 1.2X.

Investor Concerns and Responses

• Mega-Ship Orders: New mega-ship orders will not derail the container cycle, as delivery timelines are long (24+ months), and 2016E is expected to have record-low deliveries.
• Port Congestion: Expected to recur during peak season, but carriers can pass on costs due to higher ex-fuel contract rates.
• Slow-Steaming: Container vessels are unlikely to speed up due to alliances and hull design, while dry bulk vessels may increase speed once rates improve.
• Trade Growth: The report expects a cyclical recovery driven by demand from the US and Europe, and falling oil prices.

Key Companies and Ratings

*Denotes that this stock is on our Regional Conviction List.

Summary of Key Investment Rationale

• Container Over Dry Bulk: The container shipping sector is viewed as more resilient due to better supply-demand dynamics and industry structure.
• Transpacific Exposure: Companies with significant Transpacific exposure (e.g., OOIL, NOL, Evergreen, CSD (H)) are preferred as they benefit from higher volumes and better contract rates.
• Valuation Opportunities: The report highlights that some stocks are undervalued and may re-rate over the next 12 months.
• ROE Sensitivity: Companies with higher ROE sensitivity (e.g., NOL, OOIL) are expected to benefit more from margin improvements.

Conclusion

The report concludes that the container shipping sector is more favorable than dry bulk, with a strong outlook for 2016E. The key recommendations are to upgrade NOL and CSD (H) to Buy, and maintain Buy ratings on OOIL and Evergreen. The dry bulk sector is expected to have a slow recovery, with BDI at a 30-year low. The tanker segment, particularly VLCCs, is expected to benefit from low oil prices and increased crude trade volumes. The report also addresses investor concerns and outlines the rationale for the preferred stocks, emphasizing their exposure to favorable trade routes and improved financial positions.