CICC has reiterated its Outperform rating on SITC (01308), keeping its earnings forecast largely unchanged. The current stock price implies a P/E ratio of 7.8x/9.4x for 2025/2026, while the target price of HK$36 per share corresponds to 10.0x/11.9x P/E for the same periods, representing a 27.0% upside potential.

**Key Highlights:** SITC reported its Q3 2025 operational data, with revenue at $796 million (-1.7% YoY, -11.9% QoQ). Container shipping volume reached 920,179 TEUs (+8.9% YoY, -11.0% QoQ), while average freight rates (excluding swap slot income) stood at $712/TEU (-12.0% YoY, -5.7% QoQ).

**Market Trends:** The third quarter saw seasonal weakness, with freight rates declining across key routes. Southeast Asia routes experienced a sharp YoY drop due to a high base effect, while Japan routes saw a 20.5% YoY increase. The CCF freight index for Southeast Asia/Japan/Korea routes fell by 30.6%, rose by 20.5%, and declined by 8.6% YoY, respectively.

**Supply Constraints in Small Container Ships:** Small container vessels (below 3,000 TEU) remain in tight supply, with annual new capacity growth projected at just 1-2% over the next three years. Older vessels (25+ years) now account for 11.2% of the fleet. The Red Sea rerouting has increased demand for feeder vessels, leading to an 8.5% rise in small ship capacity since late 2023, primarily in the Middle East, Indian subcontinent, and intra-Europe routes. In contrast, intra-Asia small vessel capacity grew only 2.2%. Charter rates for 1,700/2,750 TEU vessels surged 37.8%/16.4% YoY for 6-12-month contracts.

**Trade Shifts & Regional Growth:** Amid U.S. tariff policies, supply chain relocation is accelerating. China-ASEAN trade grew 9.6% YoY in the first nine months of 2025. CICC expects this trend to bolster Southeast Asia’s economic expansion and sustain steady intra-Asia cargo growth.

**Risks:** Geopolitical uncertainties and a global economic slowdown could pose challenges.