It has risen by more than 35% in the past 20 trading days, and the shipping sector of Hong Kong stocks seems to have sounded the horn of "the king of the cycle".
On May 13, the shipping sector rose strongly by nearly 5 points to lead the gains. The next day, the shipping sector strengthened again, rising 0.7%. In the long term, since April 19, in just 19 trading days, the shipping sector has risen by more than 35%, which once ignited the investment enthusiasm of the secondary market. Among them, COSCO Shipping Holdings (01919) has risen day after day, and its market value has re-exceeded the 200 billion "mark".
(Quote source: Futu)
However, just as everything has "two sides", the continuous rise in the shipping market also has a "two sides" that cannot be ignored.
The shipping sector is "positive": the valuation is on the rise, and the freight rate center of the container freight rate is increasing
As a typical cyclical industry, the shipping industry was once regarded as the "king of cycles" by the outside world, and its fluctuations are superimposed on many factors such as freight market, ship trading market, shipbuilding market, and ship recycling market. The shipping industry has started to rise this time, and it is inseparable from the resonance of multiple markets.
First, the prolongation of the Red Sea conflict has led to supply chain straines.
Since mid-December 2023, most container shipping companies have suspended the passage of the Red Sea and the Suez Canal to bypass the Cape of Good Hope. After the detour, the sailing time became longer, the effective capacity was passively reduced, and the freight rates of the European and American routes rose sharply. On the one hand, the increase in shipping distance caused by the detour of ships has effectively increased the demand for container nautical mile capacity and digested the existing capacity, on the other hand, the decline in ship turnover efficiency has led to tight container turnover in ports, further exacerbating supply chain tensions.
According to Clarksons, if you choose to avoid the Red Sea, you will significantly increase the distance and number of days sailed, taking the Far East to Europe as an example, the circumnavigation of the Cape of Good Hope will take about 36 days, which is about 8 days longer than the route through the Suez Canal, and the distance will increase by about 29%.
Second, the marginal improvement of the demand side is superimposed on the demand for stocking in the peak season.
Specifically, the marginal improvement of shipping demand is also a major factor driving the upward movement of freight rates. The improvement of shipping demand is mainly reflected in two aspects, first, the marginal improvement of macroeconomic data in Europe and the United States, according to the previously announced euro area April ZEW economic sentiment index recorded 43.9, a new high in nearly 26 months; Second, due to the prolongation of the transportation time caused by the bypass, and the expectation of rising freight rates in the peak season, the shipper prepared the goods in advance. According to the estimation of Tianfeng Securities, the bypass of the Far East to Europe route will drive the global container nautical mile transportation demand to increase by 5.27%.
With the rebound in overseas replenishment demand, domestic export volume also performed strongly. In 1Q24, the company's container traffic volume increased by 10.5% year-on-year, of which the cargo volume of the United States/Europe/Asia regional routes was +9.7%/-9.2%/+14.4% year-on-year. Since March this year, the weekly container throughput of Chinese ports has been the highest in the past three years.
In addition, as the U.S. line has entered the critical period of long-term agreement, the shipping company has the momentum to increase prices.
It is reported that a number of liner companies have recently adjusted the peak season surcharges for Asia-Africa routes. In addition, along the timeline forward, since May, a number of shipping companies disclosed price increases, at the beginning of the month CMA CGM, Hapag-Lloyd for Asia-North Europe, Asia-Mediterranean and North Africa routes to raise freight, to CMA CGM for example, Asia-Nordic route new FAK standard of 2700 US dollars / TEU, 5000 US dollars / FEU, effective from May 15, the new standard increase of 500 US dollars / TEU, 1000 US dollars / FEU.
From the above, it can be seen that it is the multiple factors above that support the continuous rise in freight rates, which in turn ignites the investment enthusiasm of shipping stocks in the secondary market.
The "opposite" of the shipping sector: earnings are under pressure, reversal or continuation?
Compared with the strong performance of rising valuations, the "opposite" of the shipping sector seems to be: downward performance and pressure on earnings.
Zhitong Financial APP observed that most of the performance of the shipping industry in 2023 showed a double decline in revenue and net profit, and among the 12 Hong Kong shipping stocks in the statistics, only 5 shipping companies achieved a double increase in performance in 2023, and the remaining shipping performance is a downward trend, including leading shipping stocks such as China Transport Shipping Holdings and China Merchants Port, which have a large revenue scale.
(数据来源：choice)
It is reported that the overall poor performance of the shipping sector in 2023 is mainly due to the interference of international conflicts in shipping prices and shipping demand, as well as the situation in the Middle East in 2024 is still relatively acute and increases the uncertainty of the industry. Taking COSCO Shipping Holdings as an example, the decline in the company's overseas market revenue during the period was the main reason for the decline in overall performance.
Specifically, COSCO SHIPPING Holdings has two major businesses, namely container shipping business and terminal business, the former accounting for 95.8% of revenue, and the latter accounting for 4.2%, the container shipping business market covers China, the Americas, Europe and the Asia-Pacific region, of which Europe and the Americas are the main markets, but the revenue decline in 2023 will be as high as 64.1% and 65% respectively, resulting in a decline of 56.2% in overall business revenue.
In view of this, COSCO SHIPPING Holdings also began to actively adjust its market strategy and focus on emerging markets, during which it received a total of 6 24,000 TEU environmentally friendly container ships and 1 14,000 TEU Latin American extreme container ship, with a total capacity of nearly 160,000 TEUs, which were put into Asia-Europe routes and emerging market routes respectively. In addition, the company has also successively opened up Europe-South America East routes and a number of RCEP member country routes to diversify international risks.
Looking back at the shipping port market in 2023, there is a contradiction between the demand and capacity of subdivided industries, and the global maritime trade volume will increase by 3% and remain at a low level. For example, in the field of containers, according to the statistics of Drewry, a consulting agency, the global demand for container transportation increased by 0.4%, but the global container capacity increased by 8% year-on-year, and the market is facing great pressure on the supply side, which also proves the sharp decline in the performance of COSCO Shipping Holdings. On the price side, due to the intersection of multiple factors such as geopolitical conflicts, inventory and demand, the prices of different types of transportation routes are non-linear and fluctuate greatly, which also has a significant impact on performance.
However, it should be noted that since entering 2024, the Red Sea bypass problem has continued to ferment and pushed the shipping market into an upward cycle, and the continuous rise in freight rates has obviously brought a certain positive effect to the performance of shipping stocks.
On the other hand, under the background of high concentration, the industry has a strong willingness to raise prices, and secondly, the main ship type of the European line is 17000TEU+ ship type, and the delivery capacity in 2024 will account for about 6.0%, and the supply of new capacity is limited. In 2024, the container freight rate will rise sharply, with the average CCFI index +20% year-on-year and the average SCFI index +100% year-on-year year-on-year.
(Image source: Zheshang Securities)
Against this backdrop, in the first quarter of 2024, the performance of shipping stocks has also improved significantly.
In the first quarter of this year, the global container ship capacity increased by 9.6% year-on-year, of which the European line capacity increased by 8.6% year-on-year, and the US line capacity increased by 2.4% year-on-year. In the case of a significant increase in new supply, freight rates still recorded a significant year-on-year increase. The performance of this industry has also clearly had a clear positive feedback effect on the performance of shipping stocks.
According to statistics from Huachuang Securities, in 2024Q1, A-share listed companies in the shipping industry achieved a total net profit attributable to the parent company of 10.15 billion yuan, a year-on-year increase of 8.8%. Among them, the vast majority of shipping stocks have improved their performance, and among the 17 listed companies in the statistics, only 4 shipping stocks have seen a decline in net profit, which shows that with the help of rising freight rates, the pressure on the profitability of shipping stocks has eased.
(Data source: Hua Chuang Securities)
For the performance of the above-mentioned industries, the Shanghai International Shipping Research Center pointed out that overall, the operating conditions of China's shipping industry in the first quarter have been improving, and the confidence of shipping entrepreneurs in market operation has increased significantly, and the shipping market is expected to continue to repair in the second quarter.
In the follow-up, Shenwan Hongyuan believes that the continuation of the Red Sea bypass exceeds expectations, and the recent export recovery is superimposed, with the South American line leading the rise, and the European line and the American line rising sharply. European line futures map under the global container transportation sector futures stock linkage. Although large container ships and new ship orders are sufficient, if the Red Sea bypass is over, there is a greater downward pressure on freight rates, but it has been partially reflected in the valuation. Considering that the recent container shipping price exceeds expectations, from the perspective of follow-up cargo volume, the agency believes that the traditional peak season from July to September has not yet begun, and the current level looks at the current level of May and August with high certainty that the container transportation will continue to increase prices.
However, Zhitong Finance and Economics observed that a large number of newly-built container ships will be delivered in 2024, of which the delivery volume in the first half of the year is larger. The increase in container ship capacity may hedge against the reduction in capacity caused by the deviation. At the same time, in an environment of high interest rates on the US dollar, the global economy
It is likely that the growth rate will continue to be low, or even decline, which will drag down the growth of shipping demand. The above factors may bring some pressure to the freight rate, so investors can not blindly chase the market, it is recommended to pay attention to the sector leader and the stable target with a high dividend payout rate.