JPMorgan has issued a research report reiterating its "Overweight" rating on COSCO SHIP ENGY (01138), with a target price of HK$29, and advises investors to buy on dips.
The bank noted that Very Large Crude Carrier (VLCC) freight rates softened for most of last week, which it believes was due to the gradual easing of extreme logistics bottlenecks that began in September. By Thursday (the 1st) of last week, freight rates rebounded, reflecting strengthening underlying cargo demand rather than merely a recurrence of port congestion.
The bank pointed out three positive signals: first, the earlier freight rate pullback reflected improved logistics; second, Saudi Arabia's Yanbu port has reopened; third, ship-to-ship transfers have shifted away from congested Oman, with more Indian refiners sailing directly into the Strait of Hormuz, releasing some capacity.
On Thursday of last week, freight rates on the West Africa-to-China, US Gulf-to-China, Oman-to-China, and Hormuz routes all recovered, indicating that newly released capacity was quickly absorbed.
JPMorgan expects Hormuz freight rates to maintain a risk premium, and the strength in rates is also spreading from VLCCs to Suezmax and Aframax tankers.