Thanks to an improved outlook for a global economic recovery, driven by areas of favourable supply and demand dynamics, Drewry Maritime Equity Research anticipates that the global container trade will grow by 4.7 per cent this year and 5.7 per cent next year, reaching 684 million TEUs by the end of next year, according to the latest forecasts from Drewry Maritime Equity Research. Port capacity is only expected to reach 994 million TEUs by 2014 increasing at a CAGR of 3.9 per cent since 2011, which will nudge average utilisation up to 69 per cent in 2014 from 67 per cent in 2011.
However, there will be wide regional variations, leading to very different utilisation levels across geographies. Emerging regions such as Far East and Southeast Asia will see much higher average utilisation of around 75 per cent next year, while muted demand in western Europe will keep the average down at 57 per cent. This was certainly the case in early 2013. A sharp increase of 6.4 per cent in share prices of the major port companies under coverage was recorded, buoyed by positive market news and attractive valuations. But that average hides a huge divergence, with DP World surging ahead by 34 per cent and ICTSI following with 22 per cent, but Dalian Port Corporation (-8 per cent) and Hamburg Hafen and Logistik (-6 per cent) lost value.
Drewry Maritime Equity Research’s shares to watch for 2013 are Cosco Pacific (1199 HK) and HHLA (HHFA GR). Cosco Pacific is well positioned, given its stable revenues from container leasing, its exposure to the Bohai Rim and early signs of the Chinese economy bottoming out as the global trade recovery gathers steam. Impressive volume growth at Piraeus in 2012 further corroborates this view. COSCO Pacific trades at 8.6x 2013E EV/EBITDA against a sector average of 9.7x, while Drewry’s fair value of HK$14.1 implies 35 per cent upside from the current levels.
Drewry also favours HHLA as it is attractively valued at current levels. The company has a strong presence to serve its immediate hinterland traffic, while it also stands to benefit from the growth potential in the transhipment market of the Baltic Sea. Encouraging news on Elbe River dredging will be positive for the stock. Drewry sees a 34-per-cent upside for HHLA as stock is trading at a deep discount to both Drewry’s fair-value estimate at 22.4 euros per share and sector multiples.
Drewry has taken a cautious stance on Santos Brasil (STBP11 BZ) and ICTSI (ICT PM). Santos Brasil will face headwinds as it expects new terminals (BTP and Embraport) to start operations in 2013. Uncertainty regarding extension of the concession for TECON, the company’s flagship terminal at Port of Santos, is also a serious concern. Despite 14 per cent upside potential at current levels with a fair value for Santos Brasil at R$33.6 per share, Drewry has noted that regulatory uncertainty and intensifying competition will increase the risk and do not fully compensate for the undemanding valuations.
On ICTSI, in spite of a solid fundamental story, the stock is richly valued at current levels. ICTSI has outperformed sector returns by a wide margin in 2013 and current valuations do not support further upside potential. The company is trading at 13.3x 2013E EV/EBITDA compared with an industry average of 9.7x, which given the higher risk profile of its new assets is questionable.
On an aggregated basis, Drewry Maritime Equity Research expects the 12 ports under coverage to deliver 8.4 per cent growth in sales, 10.8 per cent growth in EBITDA and net income growth of 14.3 per cent in 2013. Aggregate market capitalisation of $54.2 billion implies 2013 EV/EBITDA of 9.7x for the sector. Aggregate dividend yield will be 3.2 per cent, according to its estimates.
*All financial figures are based on the closing share prices as on 17th April, 2013.