[ET Net News Agency, 16 December 2019] Morgan Stanley said a potential recovery in
trade in 2020 could bring opportunities for Chinese transportation names. The research
house prefers airlines and container shipping under its transportation coverage.
A "phase one" deal between China and the US was announced on 13 December. Morgan thinks
that China's transportation, a potential recovery in trade could bring an improved demand
outlook for Chinese airlines and shipping, and reduced concerns about potential Rmb
depreciation.
It expects 0.1ppt-1.3ppt ROE (return on equity) improvement for the Big 3 (Air China,
China Eastern Airlines and China Southern Airlines) in 2020 versus 2019, in contrast to
their depressed valuations. Potential catalysts could include recovery in passenger
traffic growth, improvement in 4Q 2019 earnings on a YoY basis, and potential Rmb
appreciation.
In addition, improved trade growth could directly benefit the shipping segment on the
demand side. On the supply side, Morgan sees continued improvement from a lower
orderbook/fleet ratio; continued supply disruptions from scrubber retrofits, thanks to the
IMO 2020; and potentially higher aged vessel scrapping in 2020 with more expensive
compliant fuels. It prefers container shipping the most, followed by dry bulker and
tanker.
Morgan reiterated its "overweight" ratings on Air China (00753), China Eastern Airlines
(00670), China Southern Airlines (01055), Spring Airlines (Shanghai: 601021); COSCO
Shipping Holdings (01919), SITC (01308), and Pacific Basin (02343). (KL)