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Port & shipping sector – Opportunities in turbulence times

Sector note 27/12/2022    215

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  • Sea freight rates are entering a downward trend following the oversupply, bringing a gloomy outlook for shipping companies in FY23-24F.
  • Mixed factors create a neutral outlook for global seaport industry but Vietnam’s picture may be brighter thanks to improved macroeconomics.
  • Our stock pick is GMD while PHP, VSC and HAH are in our watchlist.

2023F to be a big challenge for global port & shipping industry
We believe global port & shipping industry will face many difficulties in 2023F as global economic slowdown may negatively affect global trade activities as well as global sea freight volume. However, we still see a few factors that could help improve the outlook of the industry in 2023F, including: (1) container shortage has been resolved due to the additional supply of containers in 2022, (2) China is on the way to re-opening its economy, which will pump up global consumption & trade activities, (3) we forecast average Brent oil price to stay around US$90/bbl in 2023F, which will reduce fuel cost for shipping companies and improve global trade activities. In the context of mixed factors, we believe 2023F to be a big challenge for global port & shipping industry.

Shipping companies’ earnings to weaken in FY23-24F due to oversupply
According to Alphaliner, number of new ship orders keep increasing, bringing current order volume to reach 27.9% of total market capacity – the highest level since 2012. Oversupply will put great pressure on sea freight rates in coming periods. The shipping company business results have a certain lag with movement of sea freight rates as shipping time charter contracts are usually signed for 6-12 months. Thus, the impact of the decline in sea freight rates will clearly affect business results of Vietnam shipping companies in 2023-24F.

Brighter outlook for seaport operators in 2023-24F
The picture of Vietnam seaport may be brighter thanks to rising disbursed FDI in manufacturing sector and several trade agreements in force. We expect Vietnam’s container volume to grow at 8.6% CAGR in 2022-30F, in which Hai Phong port cluster with decreasing oversupply and Cai Mep – Thi Vai port cluster with infrastructure upgrade & favorable mechanisms have the most potential among major ports. In 2023-24F, some major expansion projects will be implemented and come onstream, such as GMD’s Nam Dinh Vu Phase 2 and Gemalink phase 2 (VND6,070bn), PHP’s deep-water port (VND6,946bn), which will bring great growth potential for the owners in the coming years.

Our stock pick is GMD
We prefer seaport operators which have capacity expansion plan while maintaining earnings growth in the coming years, thus we pick GMD. We also put PHP, VSC and HAH on our watch list due to capital expansion plan and attractive valuation.

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