Equity Analysis /
Thailand

Regional Container Lines PCL: Should you buy shipping stocks during a rate downtrend?

  • Shipping rates plunge, but RCL’s earnings profile remains strong

  • Our base assumptions are now very conservative

  • Even if rates shrink to 2019 levels, downside risk is limited

Bualuang Securities
21 July 2022

Chinese export containerized freight indices have changed little, July-to-date (the CCFI rose 1.0%, the SCFI declined 3.4%), but RCL’s stock price slid 11.7%. Its current price entails only limited downside risk under our worst-case scenario (if new-normal rates resume 2019 levels). Hence, it makes sense to BUY RCL ahead of strong 2Q22 earnings and a big 1H22 dividend announcement.

Shipping rates plunge, but RCL’s earnings profile remains strong

Our model points to a 2Q22 core profit of Bt6.9bn, up 117% YoY but down 15% QoQ, in tandem with freight rate movements. For 2H22, we now assume a mean freight rate dive of 33% HoH, so a halving of core profit HoH. Our 2022 core earnings forecast is Bt23.1bn (core EPS of Bt28; we assume a 30% dividend payout ratio, so a 2022 DPS of Bt8, a hefty 21.9% yield). RCL will take delivery of six new ships (totaling 62k TEUs), 4Q22-2Q25. Some of the vessels are locked into fixed-rate long-term rental contracts at good rates. Profits from those ships will buffer RCL’s earnings profile against the freight rate downtrend.