WHAT THE BROKER SAYS
China Shipping Development is expected to gain from increasing commodities demand, and DBS Vickers Securities has maintained its 'buy'' recommendation on the stock.
It has set a one-year price target of HK$3.10. The counter closed on Friday at $3.175.
Strong dry bulk and international oil transport businesses continued to boost revenue growth for China Shipping this year. Coal transport stopped declining and returned to the level of the same period last year after a pick-up since April.
Revenue grew 21 per cent year on year in June, mainly driven by domestic coal transport and international oil transport.
Sinopec's resumption of oil processing volume helped the company's domestic oil transport business to recover in June, when overall oil transport revenue rose 22 per cent to 210 million yuan (about HK$198.16 million). Domestic oil transport reported year-on-year growth in June after two consecutive months of decline. Overall revenue rose 16 per cent year on year for the first half of 2003. That from international oil transport surged 47 per cent, which is further evidence that the company is well positioned to benefit from rising oil demand.
Revenue from dry bulk transport continued to grow at a healthy 32 per cent year on year in June, backed by stable freight rates and volume growth of 41 per cent in international business. Domestic coal transport also picked up due to delayed delivery.
Domestic freight rates for coal, oil and dry bulk are expected to edge down by a modest 4-7 per cent year on year in 2003. The distance-weighted freight rates for international oil transport have been coming down gradually along with the consolidation of oil prices.
DBS Vickers says it target price is based on an expanded price earnings target of 15 times and upward revision of its 2004 earnings estimate, but cautions investors that strong sentiment towards H shares may lead to near-term price volatility.
It maintains its positive view of China Shipping because it is in a position to capitalise on rising oil and dry bulk transport, backed by new capacity, including dry bulkers, aframax tankers and very large crude carriers.