Highlights

• LNG tanker market continues to be oversupplied. Both LNG spot and time charter rates are still at low since 2011. Current LNG vessel overhang is at 43 opened for spot out of the 452 vessels in the market. For the next 2 years, newbuild LNG vessel delivery is still expected to be heavy before tapering off by 2019. In the longer term, we expect more LNG shipping contracts will be predominantly on spot charter basis, backed by increasing flexibility in LNG shipping routes.

• Petroleum tanker market uninspiring . We do not expect strong recovery in charter rates as seen in 2015 due to expected tepid demand growth for petroleum tankers. Vessel delivery is expected to hit a 4-year high in 2017, putting further pressure on charter rates. Overall we expect a flat year for petroleum tankers.

• Ports: Reorganization of shipping alliances. Upon mergers between several shipping lines Ocean Three (O3) alliance would be dissolved. CMA CGM and China Cosco would join Ocean Alliance whereby UASC would join The Alliance. Westports major client, CMA CGM, might utilize dual hubbing strategy (both Westport & Singapore port) due to huge volume of container throughput of the newly formed Ocean Alliance. It is indicated that the recognized routes would not affect its volume in Westports significantly.

• Courier: Active with M&A. M&A activities catalysed by e commerce have been rife e.g. Alibaba acquiring Lazada and Nationwide (Malaysian courier) acquiring Airpak for RM33m, securing a stronger footing in logistic services for e-commerce. We believe this is just only the beginning and we foresee for more corporate developments to come in the next few years. Ebay is already looking into ASEAN e commerce market as the next pillar of growth, indicating huge potential in the region.

Catalysts

• Stronger than expected global economic growth.

Risks

• Set up of in-house logistic services by e-commerce players.

Rating

NEUTRAL

• Sector appears to be unexciting in 2017 with both shipping and ports expected to register flat growth with no positive surprises expected. The only bright spot in the industry is the courier segment with huge potential of e-commerce in ASEAN requiring courier network for logistical support. However, we believe investors must look beyond 2017 for full realization of e-commerce potential.

• We downgrade MISC to HOLD with lower TP of RM8.13 as we cut FY16/17/18 core earnings by -2.8/-9.4/-4.8% to account for longer suspension of Yemen LNG vessels and lower LNG margin for upcoming contracts.

Top Picks

• TiongNam (BUY; TP: RM2.07) due to its resilient earnings and the potential valuation rerating upon its REIT listing.

Source: Hong Leong Investment Bank Research - 13 Jan 2017