Container Shipping
Fully loaded
Joe Liew, CFA
Research Analyst
(852) 2203 6198
joe.liew@db.com
Sky Hong
Research Analyst
(86) 21 3896 2840
sky.hong@db.com
A more positive industry view. Buy CSCL, OOIL & NOL.
We are revising our view of the container shipping sector to a more positive one,
on the back of (1) slow-steaming absorbing capacity increases and presenting
profitable margin opportunities in a high fuel price environment, (2) volume and
rates growth appearing robust, and (3) new transpacific contracts allowing
container liners to pass through fuel increases.
Deutsche Bank AG/Hong Kong
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DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1
FITT Research
Top picks
Neptune Orient Lines (NEPS.SI),SGD3.01 Buy
Orient Overseas (0316.HK),HKD38.10 Buy
China Shipping Container (2866.HK),HKD2.86 Buy
Companies featured
Neptune Orient Lines (NEPS.SI),SGD3.01 Buy
2007A 2008E 2009E
P/E (x) 8.0 6.6 4.7
EV/EBITDA (x) 4.7 3.8 2.9
Price/book (x) 1.4 1.1 0.9
Orient Overseas (0316.HK),HKD38.10 Buy
2007A 2008E 2009E
P/E (x) 10.4 6.5 4.4
EV/EBITDA (x) 6.6 4.6 3.4
Price/book (x) 1.1 0.7 0.6
China Shipping Container (2866.HK),HKD2.86 Buy
2007A 2008E 2009E
P/E (x) 11.8 8.8 6.8
EV/EBITDA (x) 5.7 4.4 2.7
Price/book (x) 1.6 0.8 0.7
4250 TEU vessel - fuel vs speed
133.4
85.8
64.8
48.0
0
20
40
60
80
100
120
140
160
24.5 22 20 18
Vessel Speed (knots)
Fuel Consumption (tonnes/day)
Key differentiators of this report
-Analysis of slow-steaming
-Containerisation of dry bulk
-More positive than consensus
Slow-steaming has absorbed new supply, improved profitability
Container liners are making their vessels cruise slower (slow-steaming) in an effort
to help absorb the 13.0% and 12.7% new vessel supply growth in 2008-2009,
respectively. At current fuel prices and according to our estimates, a container
shipping company can buy a new vessel with the savings from slow-steaming one
throughout its useful life. Increased average distances traveled have also helped
absorb supply. We have not seen irrational price wars in the sector.
Volume growth has been encouraging despite a slowing US economy
US containerised exports to South Asia and the Far East were up 22% y/y in
1Q08. Backhaul volume from the US back to Asia rescued the transpacific trade
while intra-Asia trade is robust. We see overall industry TEU (20-foot equivalent
unit) volume growth of 10–11% p.a. over 2008-09E. The containerisation of
agricultural dry bulk goods will also contribute to volume growth.
Margins maintained if bunker (fuel) is passed through
In late May 2008, transpacific container lines announced that over 90% of
contracts signed for the next 12 months contain provisions for a floating bunker
surcharge. This is a positive development that has helped container lines alleviate
the doubling of bunker prices over the last 18 months.
Valuation undeservedly below book value ; key risk is faltering demand
OOIL and CSCL are trading below book value and we believe these companies
have the potential to surprise the market over the next 12 months. Balance sheets
of the three liners we cover are strong with little or no gearing. 2Q08 results are
unlikely to be strong because floating bunker will not be in full effect yet and 2Q is
traditionally a weak quarter. Any share price weakness is a good accumulation
opportunity, in our view, as we head into the seasonally stronger months in 3Q-4Q
and these stocks have scope to positively surprise. A worse-than-expected global
economic slowdown is a key risk as this will drag down overall revenue and
earnings.

Table of Contents
Slow-steaming has reduced fuel cost ............................................. 3
Large supply growth, but slow-steaming has helped ...............................................................3
No weakness in vessel prices...................................................................................................7
Volume growth likely to positively surprise ................................... 9
Volumes slowing, but not as much as expected ......................................................................9
The containerisation of dry bulk commodities ........................................................................13
Floating bunker surcharge on transpacific.................................... 15
Abolishment of European conference not critical in our view.................................................16
Key industry risk .............................................................................. 17
Valuations of container companies – P/B is key........................... 18
China Shipping Container............................................................... 22
Neptune Orient Lines ...................................................................... 38
Orient Overseas (Intl) ...................................................................... 44

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