Yang Ming Marine Transport Corp’s (陽明海運) possible order of mega-vessels could help prevent the company from being squeezed out of Asia-Europe trade amid a fiercely competitive market, Citigroup said yesterday.
Yang Ming’s possible order of five 16,000 twenty-foot equivalent unit (TEU) sized vessels is a “necessary and defensive move to maintain its market position in Asia-Europe trade,” despite the current global slowdown and the company’s weak balance sheet, Citigroup Global Markets analyst Rigan Wong said in a note issued yesterday.
The Hong Kong-based Wong said it was an unavoidable development for Taiwan’s No. 2 container shipper to double the capacity of its current 8,000-TEU vessels because Yang Ming’s major rivals are already deploying larger and more cost-efficient ships.
It is “better late than never” for Yang Ming, Wong wrote.
Sluggish demand amid a global slowdown and soaring fuel prices resulted in Yang Ming reporting NT$2.69 billion (US$89.3 million) in net losses, or NT$0.86 per share, for the third quarter, marking its second straight quarterly loss. In the first nine months of the year, the firm’s accumulated losses totaled NT$5.3 billion, the company’s data showed.
Despite these figures, Yang Ming chairman Frank Lu (盧峰海) said on the sidelines of a legislative session on Thursday that he planned to submit a proposal to the company’s board of directors this week to order five ships capable of carrying up to 16,000 TEU containers.
The Chinese-language Commercial Times quoted Lu as saying that the proposal would be sent to the board today and, if approved, would cost the company an estimated NT$22.5 billion for the five vessels.
The newspaper said Yang Ming is likely to place the order with CSBC Corp, Taiwan (台灣國際造船), the nation’s biggest shipbuilder, and the first ship would be delivered in 2015, citing unnamed CSBC officials.
Shares in Yang Ming rose 2.8 percent to NT$12.85 on the Taiwan Stock Exchange yesterday, outpacing the 0.24 percent rise in the TAIEX. So far this year, the stock has dropped 54.51 percent, compared with a decline of 15.05 percent in the benchmark index over the same period.
Citigroup said investors should be cautious about the news as details of the order have yet to be finalized and investors should take into account Yang Ming’s loss of market share in Asia-Europe trade until the new mega-vessels are delivered, it said.
In addition, there is also concern about Yang Ming’s ability to secure favorable financing terms for these vessels given the current restricted credit environment and the potential financial impact on the shipper’s weak balance sheet, Citigroup said.
“This potential order could strain Yang Ming’s already stretched balance sheet,” Wong said in the note.
More positively, Yang Ming could gain favorable terms from CSBC or receive support from its major shareholder, the Ministry of Transportation and Communications, the note said.