20140820-高盛-On_recovery_track__CL-Buy_on_OOIL__Evergreen_up_to_Buy__Hanjin,_Yang_Ming_up_to_Neutral_46页_1mb

Asia Pacific Shipping Sector Summary

Core Content

The document provides an equity research summary on the Asia Pacific shipping sector, focusing on container and dry bulk segments. It highlights the recovery potential of both segments, driven by near-historical low fleet growth and order books. The report emphasizes the long-term preference for container shipping due to a more concentrated market structure and growth from both developed market (DM) and emerging market (EM) consumer demand. It also outlines investment ratings, target prices, and earnings forecasts for several Asian shipping companies.

Main Viewpoints

• Shipping Recovery: The container and dry bulk segments are on the verge of recovery, supported by low fleet growth and order books.
• Preference for Containers: Containers are preferred over bulkers for long-term growth due to market concentration and trade drivers from consumer growth.
• Rating Changes:
  • OOIL (0316.HK): Maintained as Buy*, with a target price of HK$66.00 and a price of HK$46.15 as of Aug 15, 2014.
  • Evergreen Marine (2603.TW): Upgraded to Buy, with a target price of NT$23.00 and a price of NT$17.15 as of Aug 15, 2014.
  • Sinotrans Shipping (0368.HK): Maintained as Buy, with a target price of HK$2.80 and a price of HK$2.40 as of Aug 15, 2014.
  • Hanjin Shipping (117930.KS): Upgraded to Neutral, with a target price of W5,300 and a price of W6,080 as of Aug 15, 2014.
  • Yang Ming (2609.TW): Upgraded to Neutral, with a target price of NT$13.10 and a price of NT$12.55 as of Aug 15, 2014.
  • U-Ming Marine (2606.TW): Removed from the Conviction List, but retained as Sell, with a target price of NT$35.20 and a price of NT$47.80 as of Aug 15, 2014.
• Valuation Metrics: The report uses the Director's Cut methodology to derive target prices and highlights that OOIL and Sinotrans Shipping are the most attractively valued in the region with 0.8X and 0.56X 2014E P/B ratios, respectively.

Key Information

Earnings and Target Price Revisions

• The report revises 2014-16E EPS by an average of -8% to 5% and 12-month target prices by -9% to 28%.
• OOIL is noted for its attractive valuation and strong balance sheet, with a net debt to equity ratio of 29% vs. industry average of 99%.
• Evergreen Marine is upgraded due to cost improvements from the CKYH + Evergreen alliance, with a target price increase of 28%.
• Sinotrans Shipping benefits from a strong net cash position and potential synergies from parent company support.

Risks and Challenges

• Industry Recovery Risks: Slower-than-expected recovery, poor capacity discipline from carriers, and volatile bunker fuel prices.
• Liquidity Concerns: Hanjin and Yang Ming face liquidity issues, though improvements are expected due to parent company support.
• Recapitalization Risks: NOL has a high net debt to equity ratio, which could lead to risks for existing shareholders.

Investment Catalysts

• OOIL: Cost leadership, balanced route exposure, and strategic expansion.
• Evergreen Marine: Alliance cost improvements, potential expansion, and stronger balance sheet.
• Sinotrans Shipping: Parent support, vessel acquisition, and synergies with Sinochart.
• Hanjin Shipping: Financial support from parent company, improved cost discipline.
• Yang Ming: Near-trough valuation, potential earnings turnaround.

Summary Table

Conclusion

The report suggests that the Asia Pacific shipping sector is on the path to recovery, with a particular focus on container shipping. Companies like OOIL, Evergreen, and Sinotrans Shipping are highlighted as top picks due to their strong fundamentals, attractive valuations, and potential for earnings growth. While Hanjin and Yang Ming are upgraded to Neutral, they still face financial challenges. U-Ming is removed from the Conviction List but remains a Sell due to higher downside potential. The overall analysis is based on updated supply-demand assumptions and valuation methodologies.