Shipping sector
Maintain “neutral”: We remain neutral on the shipping sector as we expect the industry outlook to be mixed. Select rates within the tanker segment (that is, petroleum and liquefied natural gas [LNG]) are expected to improve, although we see this being largely offset by further deterioration in the dry bulk and chemicals segments. Nonetheless, we are neutral on MISC while we have a buy call on Maybulk.
Overall, we are cautious about the outlook of the dry bulk segment, remaining flat going into first quarter of 2015 (1Q15) due to lower factory activity amid the seasonally slow period in conjunction with the Chinese New Year festival.
Furthermore, we believe the potential slowdown in China’s economy could see rates remaining depressed.
On the flipside, we expect the BDTI to improve due to continued weakness in crude oil prices encouraging trade activities. Furthermore, a colder-than-expected winter season in the northern hemisphere, similar to end-2013 and early-2014 could boost rates. The possible lift in the United States’ sanction on the crude oil exports after almost four decades may provide an additional boost to the index.
We have a “neutral” call on MISC with a positive bias. While the industry dynamics seem to favour MISC over Maybulk, we believe this has largely been priced in.
However, we foresee further upside to our earnings forecasts should prevalent conditions continue to favour MISC such as: (i) depressed bunker fuel; (ii) weakness in the ringgit against the dollar; (iii) tanker rates trending higher and (iv) renewal of LNG contracts which are set to expire over 2015 to 2017.
Meanwhile, we have a “buy” call on Maybulk. While industry dynamics for the dry bulk sector looks bleak, we believe the market has more than priced in the earnings risk. We see operations stabilising with the weaker ringgit against the dollar, while lower bunker fuel price is favourable to its operating costs. — MIDF Research, Dec 23
This article first appeared in The Edge Financial Daily, on December 24, 2014.