The containerships sector is attractive because of favorable demand/supply dynamics coupled with attractive valuations. Container freight rates may continue to soften over the next three months before rebounding from 2Q11. However, this is discounted at current valuations of 1.0X EV/fleet value. An early than expected recovery in rates could lead to positive earnings surprise, driving share price performances over the next 12 months.
Transpacific and intra-Asia rates could outperform Asia-Europe rates on more favorable demand/supply dynamics. Stronger US economics recovery and intra-regional trade could underpin robust volume growth for Transpacific and intra-Asia trade. Meanwhile, Asia-Europe trade may also suffer from higher supply growth as the current orderbook consists of mainly larger vessel classes, which are more likely to be deployed in Asia-Europe trade as deepwater ports than can accommodate these large vessels are mainly located in Europe. The following top picks have greater exposure to Transpacific and intra-Asia trade relative to their peers.
Favorable tip picks: Orient Overseas (0316.hk); Neptune Orient Lines (NO3.sgx); Hanjing shipping (000700.KS); Evergreen Marine (2603.TW) and Wan Hai (2615.TW).
From GS Report: Asia Transportation 13 Jan 2011
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