Shipping and Shipbuilding -
What‟s good for shipyards is not good for container shipping
Containership orders have been very strong in 2013, and we expect orders to continue into 2014-15, benefitting primarily the Korean shipyards. Container shipping, on the other hand, will likely face a challenging 2014, as oversupply accumulates.
We stay Overweight on the Offshore and Marine sector, and Neutral on Container Shipping. HHI is our top Outperform pick, followed by DSME, as they gain from more containership orders, among other catalysts. OOIL remains our top pick in the container shipping space on valuation grounds and on its internal strengths, though immediate investor interest may be limited. Our forecasts for OOIL and CSCL have been lowered here.
More orders in 2014-15
We believe that containership orders will continue in the years ahead. First, the orderbook as a percentage of the existing containership fleet continues to hold at a near-historic low of 22%. Second, shipbuilding deliveries are expected to drop significantly in 2016, compelling carriers to place orders next year given the 2-3 year lead time between the order and actual delivery. Third, panamax-sized ships of 4,500 teu will lose their competitiveness once the new Panama Canal locks open, and carriers will need to order more of their 9,000 teu replacements. Fourth, the CKYH and G6 alliances lack the 16k and 18k teu newbuildings that the proposed P3 and unaligned carriers have already ordered.
To maintain their competitiveness on the Asia-Europe trade, the former two alliances will have to take the plunge. And last, financing via independent owners has been available.
Korean yards benefit most
Korean-owned yards have a strong competitive and technical advantage in the containership newbuilding space, with HHI and DSME likely to benefit the most from new orders. Containerships are expected to contribute up to 15% of their net profits in the forecast period. Rising newbuilding prices also help greatly.
Shipping sector the loser
One man‟s meat is another man‟s poison. Clearly, container shipping companies will not see relief from rising overcapacity until 2015/2016 at the earliest.
Publish date: 04/12/13