＜Research＞M Stanley Downgrades COSCO SHIP HOLD, OOIL to Underweight; Long Winter Looming for Sector

　　Morgan Stanley commented in a report that even if the Red Sea conflict continues, it will take at least 2-3 years for the container shipping industry to absorb the oversupply. The broker expected a long and painful downturn, with a long winter looming ahead.

　　Morgan downgraded COSCO SHIP HOLD (01919.HK) -0.100 (-0.870%) Short selling $125.15M; Ratio 11.599% A-/H-shares and OOIL (00316.HK) -1.300 (-1.130%) Short selling $36.16M; Ratio 15.764% to Underweight, chopping its target price for COSCO SHIP HOLD's H shares by 35.6% to $8.5, and slashing its target price on OOIL by 21.9% to $89. The broker also cut the target price of SITC (01308.HK) -0.500 (-2.632%) Short selling $34.58M; Ratio 25.722% by 12.1% to $16, and maintained its Equal-weight rating.

　　Related NewsJPM: Underlying Key Trends for Shipping Remain Intact, Keeps OW on COSCO SHIP, OOIL

　　The broker said the Red Sea conflict has temporarily slowed the industry's downturn, but its impact is starting to wane, while supply risks are accumulating. Since the industry peaked in 2021, capacity has already increased by 19% as of the middle of 2024, and the broker estimated capacity will increase by another 10% by the end of next year. However, international trade is only rising by 3% to 4% per annum, which means spot freight rates at this year's peak season will be the peak for the next 2-3 years.

　　The broker estimated that the industry will return to break-even or even loss-making conditions in the coming down cycle. The Red Sea conflict will only affect the magnitude of the cycle's adjustment, but will not change its direction. Meanwhile, Europe presents limited upside demand risk, while the US outlook is improving.

　　Morgan Stanley listed its preferences within the industry, with the least favourable being COSCO SHIP HOLD A-shares and H-shares, while the most favourable globally is Maersk. Overall, the broker's least favourable is Japan shipping stocks, as their dividend yields are relatively low compared to their Chinese counterparts.

　　Related NewsHSBC Global Research Expects Spot Container Freight Rates to Keep Rising Until End-3Q, Rates Maersk/ Evergreen Marine/ SITC Buy

　　(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-07-12 16:25.)

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