Dry bulk and tankers ready to sail; Buy Pac Basin, CSET, and MOL
ASIA PACIFIC SHIPPING：A PROVEN LEADING INDICATOR
时间：2017年06月02日 11:01:09 中财网
The ratio of order book as a % of the existing fleet has historically led the cycleby two years with a robust correlation. When this ratio falls below 20%, theshipping cycle tends to recover within two years. The ratio for dry bulk brokethrough 20% in mid-2015 and has further dropped to 8% lately while fortankers it has corrected to 12%. We reiterate Buy on Pacific Basin and CSET,and upgrade MOL to Buy from Sell. We remain cautious about containers asthis ratio for mega vessels is still at 50%. Sell Cosco Shipping and Hold OOIL.VLCC rates have dropped to US$14k/day on the combination of a slow seasonand rising newbuild supply. However, we read this correction as a healthydevelopment for the sector in the mid-term. Soft rates, combined with a strongscrapping price and the upcoming ballast water convention, would greatlyprompt scrapping. Ship owners with strong financial capability （such as CSET）are well positioned to expand their fleets. A larger fleet scale and lower coststructure in turn will enable these ship owners to capture better profitably whenthe cycle picks up in 2018 （as indicated by the ratio of the order book）。 Buy CSETfor its 0.5x P/B, locked-in contracts, and coming H share buyback by its parent.
While the overall ratio of the order book as a percentage of the total fleet hasdeclined to 15%, the ratio for mega vessels is still elevated at 50%. This meansthe sector could continue to struggle, with container rates heavily influenced bymega vessel deliveries. In addition, a sharp rise in raw material cost in China hasweighed on its exports, while competition between new alliances could rise onoversupply. All said, we remain cautious and would sell Cosco Shipping; we rateOOIL a Hold as valuation appears fair from a fundamental perspective.
Dry bulk – the entry point is now
Post the 25% correction since the highs in March, the Baltic Dry Index （BDIY）has largely reflected a seasonal weakness, in our view. Over the past six years,the index has consistently trended up in mid-June. The ratio of the order bookas a percentage of the existing fleet has fallen to 8% lately, the lowest levelsince 2004. This, along with robust scrapping resulting from the upcomingballast water regulation and upside potential from US infrastructure spending,points to a multi-year up-cycle ahead （we expect net fleet supply to fall from1.9% in 2017 to -1.4%/-3.8% in 2018/19）。 We reiterate Buy on Pacific Basinand upgrade MOL to Buy from Sell, given its higher exposure to dry bulk.
We use P/B to value shipping companies due to the cyclical nature of theshipping industry. Pacific Basin’s target price of HK$2.05 is based on 1xforward P/B, which looks fair as we expect the company to break even thisyear and make 6.9% ROE in 2018. We upgrade MOL to Buy （from Sell） on anearnings increase and set our target price at JPY390, based on 0.8x forwardP/B. Trading at 0.5x P/B, CSET appears cheap and a cycle recovery aheadshould drive re-rating. We maintain Sell on Cosco Shipping with a target priceof HK$1.4. Risks: Pacific Basin and MOL: softer-than-expected BDIY; CSET: adisappointing VLCC rate; Cosco Shipping and K-Line: stronger-than-expectedcontainer rates; NYK and OOIL: unexpected rates and global trades.
□ .S.k.y. .H.o.n.g./.J.o.e. .L.i.e.w .德.意.志.银.行.股.份.有.限.公.司
Tanker – the recent pull-back is welcomeContainer – it’s all about mega vessels
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