Over a two-week period, Shanghai to Europe and Shanghai to Mediterranean components of the SCFI rose 99% and 93% respectively, clearly showing shipping liners have been successfully in getting most of the US$700-800/TEU (20-foot equivalent unit) rate hike that they previously sought. However, with only has 21% of its capacity deployed on the Asia-Europe trade lane, the rate hikes are likely to benefit other shipping liners more than Neptune Orient Lines (NOL). In addition, it is still uncertain if the new Asia-Europe freight rates will hold, which hinges on the liners’ collective discipline in managing the oversupply of shipping capacity. Meanwhile, bunker fuel prices in 2012 have been unrelenting and have averaged 13% higher than in 2011. After shipping liners’ successful rate hikes on the Asia-Europe trade lane, we increase our fair value estimate of NOL to S$1.38/share and upgrade our rating on NOL to HOLD.
Asia-Europe rate hikes were successful
After shipping liners announced rate hikes in the range of US$700-800/TEU to Asia-Europe shipping routes, the Shanghai (Export) Containerised Freight Index (SCFI) jumped 19% higher WoW in the week ended 2 Mar 2012. This comes after the index edged 3% higher the week before. However, embedded within the comprehensive SCFI were two shipping routes that saw remarkable jumps. Over a two-week period, Shanghai to Europe and Shanghai to Mediterranean rose 99% and 93% respectively, clearly showing shipping liners have been successfully in getting most, if not all, of the US$700-800/TEU (20-foot equivalent unit) rate hike that they previously sought.
Overcapacity overhang looms
However, the increase in Asia-Europe freight rates will not benefit shipping liners in the same magnitude. With only has 21% of its capacity deployed on the Asia-Europe trade lane, the rate hikes are likely to benefit other liners more than Neptune Orient Lines (NOL). In addition, it is still uncertain if the new Asia-Europe freight rates will hold, which hinges on the liners’ collective discipline in managing the oversupply of shipping capacity.
Near record high bunker prices
Bloomberg’s 380 Centistoke Bunker Fuel Spot Price Singapore Index (BUNKSI38) has thus far in 2012 averaged 731.4, or very near its all-time high of 764.5 recorded in Jul 2008. One big difference is bunker fuel price rose to a high back in 2008 and quickly fell along with the global financial crisis in 2008/09. Bunker fuel prices in 2012 have been unrelenting and have averaged 13% higher than in 2011.
Upgrade to HOLD with new fair value of S1.38
After shipping liners’ successful rate hikes on the Asia-Europe trade lane on 1 Mar 2012, we increase our fair value estimate of NOL to S$1.38/share, based on a 1.1x P/B multiple. Consequently, we upgrade our rating on NOL to HOLD to reflect the improved sentiment in container shipping.
Overcapacity overhang looms
However, the increase in Asia-Europe freight rates will not benefit shipping liners in the same magnitude. With only has 21% of its capacity deployed on the Asia-Europe trade lane, the rate hikes are likely to benefit other liners more than Neptune Orient Lines (NOL). In addition, it is still uncertain if the new Asia-Europe freight rates will hold, which hinges on the liners’ collective discipline in managing the oversupply of shipping capacity.
Near record high bunker prices
Bloomberg’s 380 Centistoke Bunker Fuel Spot Price Singapore Index (BUNKSI38) has thus far in 2012 averaged 731.4, or very near its all-time high of 764.5 recorded in Jul 2008. One big difference is bunker fuel price rose to a high back in 2008 and quickly fell along with the global financial crisis in 2008/09. Bunker fuel prices in 2012 have been unrelenting and have averaged 13% higher than in 2011.
Upgrade to HOLD with new fair value of S1.38
After shipping liners’ successful rate hikes on the Asia-Europe trade lane on 1 Mar 2012, we increase our fair value estimate of NOL to S$1.38/share, based on a 1.1x P/B multiple. Consequently, we upgrade our rating on NOL to HOLD to reflect the improved sentiment in container shipping.
No comments:
Post a Comment