Tuesday, June 12, 2012

Shipping (container) / NOL

Shipping (container) / NOL: The Shanghai Composite Freight Index (SCFI) resumed its upward trend last week, rising 2% wow, mainly driven by Transpacific routes. In particular, Shanghai to US west coast rates surged by 14% wow to US$2,658/FEU last week. Deutsche says the sharp rate increase for Transpac routes suggests that liners have achieved part of the US$600/FEU PSS Peak Season Surcharge (PSS) as planned. The house notes, after the recent huge correction, container stocks appear to be pricing in an overly pessimistic outlook. Says, at current valuation of ~0.8x P/B, containers stocks virtually assume no peak season in 3Q and are pricing in 20‐30% plunge in rates from here during the 4Q slow season, which is a low probability scenario. Believes the strong carriers' discipline, in turn, should help to hold up the rates in 3Q peak season and prevent rates sliding in 4Q slow season. Deutsche continues to be positive on container shipping sector. Top picks are CSCL, OOIL and Hanjin. Also rates NOL (TP $1.55) and Evergreen at Buy.

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