Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Independent and original Asian investment research

Aletheia Capital

Aletheia Capital (HK) Ltd. (previously known as Asianomics) combines the extensive knowledge of its experienced team with technology and regulatory changes to disrupt Global Markets business in Asia. The firm is completely independent with no conflicts of interest either on Investment Banking advisory or Capital Markets execution.

Equity Bottom-Up

AP Moeller - Maersk A/S / Equity Bottom-Up

Our index suggests average container shipping rates increased by around 6.6% in January. This is the largest YoY increase for our index since June 2019 and follows two consecutive months of YoY declines. However, despite the increase, we believe container shipping margins remain under pressure. The required shift to more expensive low-sulphur fuel (effective January 1st) led to a sharp rise in operating costs, too. We suspect higher average container rates in January -- the result of General Rate Increases (GRIs) and a new Low-Sulphur Surcharge (LSS) in some tradelanes -- recovered less than the full increase in actual fuel expenses. Looking forward, it's clear that the COVID-19 outbreak has temporarily emptied ships sailing from Asia to North America and Europe, and that normalcy may not return for some time. Although carriers continue to push for additional rate and surcharge increases in the coming weeks, we don't think these increases will 'stick' unless or until ships begin to fill up again, which we don't expect to happen in 2020. We continue to believe near-term container shipping earnings are likely to decline for most carriers. Despite optimism about the potential for improved trade relations between the US and China and a a demand 'snap-back' once COVID-19 is controlled, we would avoid the segment for now.

Our index suggests average container shipping rates increased by around 6.6% in January. This is the largest YoY increase for our index since June 2019 and follows two consecutive months of YoY declines. However, despite the increase, we believe container shipping margins remain under pressure. The required shift to more expensive low-sulphur fuel (effective January 1st) led to a sharp rise in operating costs, too. We suspect higher average container rates in January -- the result of General Rate Increases (GRIs) and a new Low-Sulphur Surcharge (LSS) in some tradelanes -- recovered less than the full increase in actual fuel expenses. Looking forward, it's clear that the COVID-19 outbreak has temporarily emptied ships sailing from Asia to North America and Europe, and that normalcy may not return for some time. Although carriers continue to push for additional rate and surcharge increases in the coming weeks, we don't think these increases will 'stick' unless or until ships begin to fill up again, which we don't expect to happen in 2020. We continue to believe near-term container shipping earnings are likely to decline for most carriers. Despite optimism about the potential for improved trade relations between the US and China and a a demand 'snap-back' once COVID-19 is controlled, we would avoid the segment for now.

TRACKING TRAFFIC/Containers & Air Cargo: Rates Rose in January, But Margins Remain Under Pressure

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/114/303/original/BANNER-CARGO-FINAL.png?1579444685" class="editor-image img-responsive" data-smartkarma-image-id="114303"></figure>In H119, container shipping rates in the key Transpacific Eastbound tradelane held up well despite tepid demand, as fleet expansion in most of 2019 was modest and some peak season (Q3) demand was probably pulled forward to avoid the threat of new tariffs on Chinese goods moving to the US.But it appears key Transpacific Eastbound rates have been declining since late Q3 or early Q4, and we believe profitability probably peaked in Q3 for most carriers. The measures we track suggest average rates declined by 4-5% YoY in November and December. With Transpacific Eastbound under pressure and fuel prices still high, we believe near-term earnings are likely to decline for most container shipping companies. Despite optimism about the potential for improved trade relations between the US and China, we would avoid the segment for now.

In H119, container shipping rates in the key Transpacific Eastbound tradelane held up well despite tepid demand, as fleet expansion in most of 2019 was modest and some peak season (Q3) demand was probably pulled forward to avoid the threat of new tariffs on Chinese goods moving to the US.But it appears key Transpacific Eastbound rates have been declining since late Q3 or early Q4, and we believe profitability probably peaked in Q3 for most carriers. The measures we track suggest average rates declined by 4-5% YoY in November and December. With Transpacific Eastbound under pressure and fuel prices still high, we believe near-term earnings are likely to decline for most container shipping companies. Despite optimism about the potential for improved trade relations between the US and China, we would avoid the segment for now.

TRACKING TRAFFIC/Containers & Air Cargo: For Most Box Carriers, Profitability Likely Already Peaked

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

A double-dose of StubWorld this week: 
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Port operators, including <a href="https://www.smartkarma.com/entities/china-merchants-port-holdings-company-ltd" target="_blank" data-smartkarma-citation="entities:15155:1" rel="noopener">China Merchants Port (144 HK) ("CMPH")</a>, have rebounded from 2019 lows amidst a period of calm in Hong Kong and "phase one" of the US/China trade deal. A JV with <a href="https://www.smartkarma.com/entities/cma-cgm-sa" target="_blank" data-smartkarma-citation="entities:23994:1" rel="noopener">CMA CGM SA (144898Z FP)</a> provides further positive news for CMPH.
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Preceding my comments on CMPH and <a href="https://www.smartkarma.com/entities/wheelock-co-ltd" target="_blank" data-smartkarma-citation="entities:52:1" rel="noopener">Wheelock (20 HK)</a> are the weekly setup/unwind tables for Asia-Pacific Holdcos.
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These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.
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A double-dose of StubWorld this week: 

Port operators, including China Merchants Port (144 HK) ("CMPH"), have rebounded from 2019 lows amidst a period of calm in Hong Kong and "phase one" of the US/China trade deal. A JV with CMA CGM SA (144898Z FP) provides further positive news for CMPH.


Preceding my comments on CMPH and Wheelock (20 HK) are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: The Rising Tide As China Merchants Port Recovers

Equity Research Analyst, Maritime sector, Drewry Maritime Financial Research

Ankush Kathuria CFA, FRM

Equity Research Analyst, Maritime sector

Maritime Sector, Equity & Credit Research

Drewry Maritime Financial Research

With no ties to other players in the shipping, finance or banking world, we provide a uniquely impartial view of the markets and companies we cover. Our parent organization, Drewry is a leading independent provider of research services to the maritime and shipping industry, employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. Combining our market-leading resources with seasoned sector expertise DFRS offers a highly differentiated and comprehensive range of investment and financial research services to lenders and prospective investors in publicly listed maritime and shipping companies. The full service of reports, supporting resources and sector orientated webinars provides our clients with the most complete picture of the organisations under coverage as is possible. We have been charting and analysing the world’s maritime markets for more than 40 years. This unrivalled intelligence and understanding provides the foundation of our research service. Our analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.

The recent deal between CMA CGM and China Merchant Port Holding (CMPH) will be a win-win for both parties. While CMA CGM  gets the necessary cash to lower its leverage, CMPH gains geographical footprint well aligned with China’s maritime silk route initiative. However, the deal has an accounting complication, which an analyst should consider while forecasting CMA CGM's debt obligation.

The recent deal between CMA CGM and China Merchant Port Holding (CMPH) will be a win-win for both parties. While CMA CGM  gets the necessary cash to lower its leverage, CMPH gains geographical footprint well aligned with China’s maritime silk route initiative. However, the deal has an accounting complication, which an analyst should consider while forecasting CMA CGM's debt obligation.

CMA CGM’s Latest Deal with CMPH (SEHK:0144) : A Win-Win for Everyone

On YTD basis, the stock underperformed the broader index (-13.2% vs Drewry Port Index: -9.4%) and the P/E of 6.3x remained well below the industry peers (Cosco: 7.5x, DP World: 8.6x, ICTSI: 17.7x and GLPR: 6.6x). Suppressed P/E mainly reflects trade war-related uncertainties and increased concerns about CMPH’s leveraged acquisition strategy adversely affecting its ROIC profile. Offsetting these pressures, the company benefited from its higher geographic diversification, its strategic importance in Chinese BRI initiative and its possession of strategically important port assets. We do not foresee any material uptick unless the management prefers generating value from its recent acquisitions or something positive happens on the trade war front.

On YTD basis, the stock underperformed the broader index (-13.2% vs Drewry Port Index: -9.4%) and the P/E of 6.3x remained well below the industry peers (Cosco: 7.5x, DP World: 8.6x, ICTSI: 17.7x and GLPR: 6.6x). Suppressed P/E mainly reflects trade war-related uncertainties and increased concerns about CMPH’s leveraged acquisition strategy adversely affecting its ROIC profile. Offsetting these pressures, the company benefited from its higher geographic diversification, its strategic importance in Chinese BRI initiative and its possession of strategically important port assets. We do not foresee any material uptick unless the management prefers generating value from its recent acquisitions or something positive happens on the trade war front.

China Merchants Ports Holding (SEHK: 0144):Trade Conflict Choking Growth and Valuations

Hong Kong

China Merchants Holdings International Company Limited, through its subsidiaries and associated companies, operates container and cargo terminals, port transportation, and airport cargo handling.  The Company also manufactures containers, paint, and trailers as well as operates toll road, shipping, property, and dealing securities businesses.

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China Merchants Port (144 HK)

TRACKING TRAFFIC/Containers & Air Cargo: Rates Rose in January, But Margins Remain Under Pressure

Our index suggests average container shipping rates increased by around 6.6% in January. This is the largest YoY increase for our index since June...

Daniel Hellberg

TRACKING TRAFFIC/Containers & Air Cargo: For Most Box Carriers, Profitability Likely Already Peaked

In H119, container shipping rates in the key Transpacific Eastbound tradelane held up well despite tepid demand, as fleet expansion in most of 2019...

Daniel Hellberg

StubWorld: The Rising Tide As China Merchants Port Recovers

A double-dose of StubWorld this week: Port operators, including China Merchants Port (144 HK) ("CMPH"), have rebounded from 2019 lows amidst a...

David Blennerhassett

CMA CGM’s Latest Deal with CMPH (SEHK:0144) : A Win-Win for Everyone

The recent deal between CMA CGM and China Merchant Port Holding (CMPH) will be a win-win for both parties. While CMA CGM gets the necessary cash...

Drewry Maritime Financial Research

China Merchants Ports Holding (SEHK: 0144):Trade Conflict Choking Growth and Valuations

On YTD basis, the stock underperformed the broader index (-13.2% vs Drewry Port Index: -9.4%) and the P/E of 6.3x remained well below the industry...

Drewry Maritime Financial Research

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