Despite staging an impressive turnaround, the container shipping industry still faces a disconnect between valuations and the underlying demand/supply dynamics. Current sector valuation above 1x P/BV is not justified by the daunting 20% capacity oversupply by the end of 2010.
A combination of peak season demand, transpacific volume recovery and near term container box shortage has fuelled a freight rate increases and a sharp rebound in shipping stock prices, which might lead to continued outperformance in the 3Q. But supply discipline may break down as profits emerge and cap returns. Amongst the shipping stock, OOIL has the most attractive valuationat 0.8x P/BV while NOL appears stretched at 1.2x P/BV.
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