SHIPPING RECOVERY

Container shipping is making a comeback. So is dry bulk shipping. I wonder if it\'s too early (or too late) to buy into shipping stocks.... March 29 (Bloomberg) -- South Korea’s biggest port, overwhelmed with empty containers a year ago, is now dealing with shipping lines that have more cargo than they can carry. Surging shipments of furniture, electronics and clothes to the U.S. and Europe, coupled with capacity cuts by shipping lines, has caused as much as 15 percent of containers to be delayed in Busan this year, often by more than a week, according to Park Jong Ho, assistant general manager at Busan International Container Terminal Co. “With the economy recovering, we have been seeing a lot of containers that didn’t make it out on time because there wasn’t enough space on ships,” he said. A capacity crunch on transpacific routes has disrupted deliveries of Asian and U.S. exports, prompting a probe by U.S. regulators. Container lines have cut trips and imposed higher rates on customers, or shippers, after slumping trade and an excess supply of vessels caused industrywide losses of about $20 billion last year, according to Drewry Shipping Consultants Ltd.

CIMB 30 Mar 2010 Singapore Neptune Orient Lines Ltd Quick takes - Rates rise another 6.5% sequentially in Period 2 - by Raymond Yap CFA (NOL SP / NEPS.SI, OUTPERFORM - Maintained, S$1.93 - Tgt. S$2.60, ResearchWise Industrial) NOL\'s period 2, 2010 operating statistics saw the average freight rate continue to surge sequentially. The average rate rose 6.5% against the previous period on top of a previous 10% rise, representing an 18% sequential rate increase since the Nov/Dec period. This was due to improved core freight rates and higher bunker recovery. We believe the rise in average rate reflects the successful transpacific (TP) emergency revenue charge from 15 January, and the re-pricing of Asia-Europe (AE) contracts. We expect successful renegotiation of the annual TP contracts come May/June to be the key re-rating catalyst. Our target price is based on a 1.8x P/BV multiple, which is based on a 20% premium to the upper limit of its 0.5x-1.5x historical trading band. Also, NOL\'s virtually zero-debt balance sheet will enable it to accumulate distressed assets, if any. Maintain OUTPERFORM and target price of S$2.60.

Slowly but surely, the shipping stocks are coming back into vogue. Latest analyst recommendation is from DBS V: NOL should return to profitability by 4Q10; possibly earlier than street estimates Fleet supply likely to be lower than expected, while trade demand makes a strong recovery Highly leveraged to the Transpacific contract renewals, significant upside to freight rates Re-initiate with a BUY, TP of S$2.40 pegged to 7x FY11 EV/EBITDA; potential upside of >20%

From The Edge mid-week comment: While the shipping sector has supply issues, Emil Wolter, head of regional strategy, Asian markets at RBS, says “You can buy a lot of these companies at their NAVs and although some companies have problems with their balance sheets, there are also a lot of companies with strong balance sheets.” Moreover, pricing power is returning, and the shipping companies are operating more efficiently too. That’s a view that Survo Sarkar, an analyst at DBS Group Research, agrees with. In a 32-page report on Neptune Orient Lines, DBS has re-initiated coverage with a price target of $2.40. According to the report fundamentals for the shipping sector are indeed turning increasingly positive. “Year to date,container rates and volumes have both made a strong comeback — with rates on Asia-Europe routes now about 70% higher than last October levels,” Sarkar writes.

I guess brokers are busy writing another rounds of reports by bringing up NOL\'s target price.

hohoho.....NOL cheong already last week. This week, the 2nd liner shipping stocks will play catch up. Mercator, FSL, Courage Marine etc. Better grab them and ride the wave :laugh: :laugh: :laugh: up.