We reiterate our Overweight call on the Transport & Logistics sector as we expect 2H14 to be seasonality stronger. The petroleum and dry bulk tanker segments remain firm in 2Q14 with YoY positive increments registered on the back of more favourable demand and supply dynamics in the vessel market. LNG shipping segment again posted rates decline on huge outstanding orderbook for LNG vessels which could flood the market over the next few years. Moving forward, we believe the shipping sector would be in a better shape overall if vessel supply management discipline is maintained at the current level. We continue to like MAYBULK (OP; TP: RM2.53) on expectations of stronger dry bulk market ahead and its recent share price retreat. We also like HARBOUR (OP; TP: RM2.20) as a proxy to SCORE project in Sarawak.
No surprises in 2QCY14. Results were broadly in line with 5 out of 7 logistics stocks under our coverage coming within our expectations. NCB’s (UP; TP: RM2.07) numbers disappointed in the quarter no thanks to rising depreciation costs aggravated by weaker throughput achieved by the Northport operators. Meanwhile, INTEGRA (MP; TP: RM2.41) also came in weaker than expected due to unexpectedly weaker coal volume growth and cost pressures.
US still in gridlock over approval for crude oil export. As US domestic crude oil production continues to grow coupled with insufficient refining facilities to take up the supply of crude locally, there are persistent rumours suggesting the possibility of opening up the export market which could change the dynamics of the crude oil market globally. Pertaining to this issue, we believe this could bring positive catalyst to the petroleum tanker market for VLCC tanker in particular as the crude supplies could be transported to distant Asia which is leading the growth in demand in recent years.
Shipping in better overall shape, with LNG the exception. On QoQ basis, the petroleum segment appears to be flattish while dry bulk tanker and LNG tanker segments registered negative deviation on seasonally weaker cargo volumes. However, on YoY basis, both petroleum and dry bulk tankers see significant rise in charter rates due to stronger demand from emerging market countries especially China. On top of that, we also saw improving fundamentals in the dry bulk shipping market albeit uneven due to market volatility. LNG shipping, however, continued to see rates decline on YoY basis as vessel oversupply concerns lingered with huge orderbook of vessels outstanding. We believe in 2H14, dry bulk and petroleum tanker rates will seasonally trend higher compared to the 1H. On a full year basis, we are confident that dry bulk and petroleum tanker rates would register positive growth YoY as demand and supply dynamics are expected to be more favourable this year.
Reiterate Overweight call on the sector. As the shipping outlook is poised to improve, in our opinion, underpinned by better supply discipline in the market and resilient cargo throughput growth, we reiterate our Overweight call in the sector. We continue to like MAYBULK (OP; TP: RM2.53) as its valuation appears to be more compelling at the present with its share price retreating since our last strategy report possibly due to seasonally weaker dry bulk charter rates and bauxite export ban by Indonesia which affected market sentiment adversely. For the small cap, we like HARBOUR (OP; TP: RM2.20) as it could potentially unlock its Bintulu landbank value and also for its strong logistics division due to SCORE developments in Sarawak. Risks to our call include: (i) lack of vessel supply discipline in shipping market and (2) formation of major shipping alliances causing capacity cuts.
Source: Kenanga
Chart | Stock Name | Last | Change | Volume |
---|