Analysts expect no pickup in the performance of container shipping line Yang Ming for at least another year due to its high unit costs, small ships and over-exposure to volatile East-West trades.
Even with the help of asset disposals, the Taiwan-based carrier reported third quarter net income of TWD 1.04 billion (about US$35 million), down 61 percent year-on-year. EBIT and revenue performance also declined in the period compared to a year earlier, with revenue from marine freight falling 21 percent due to low volumes and weak freight rates.
Yang Ming (YMM) missed Drewry Maritime Equity Research’s revenue estimates by 10 percent owing to a steep fall in freight rates. Rahul Kapoor, an analyst at Drewry, said that with 60 percent of the line’s freight revenues derived from the Asia-U.S. and Asia-Europe trades, it was highly exposed to freight rate fluctuations.
“We expect long-haul freight rates to remain under pressure, which, in addition to YMM’s high-cost base, would lead to continued losses for the company,” he said.
According to Kapoor, with its cost savings insufficient and Yang Ming’s ships too small to compete on long-haul trades, a recovery by the company is “not in sight before 2015,” when the container line takes delivery of 14,000-TEU vessels.
HSBC noted that although Yang Ming’s fleet was young, at an average size of around 4,240-TEU capacity per ship, it lacked the scale to compete on long-haul routes. The bank also said the carrier’s large losses and high capex requirements had stretched its balance sheet, and so the line “may look to dispose of some of its assets,” including terminals.
“Yang Ming currently has the least efficient fleet and cannot take advantage of lower unit costs, unlike its peers,” HSBC said. “Although YMM has recently chartered 14,000-TEU vessels, they will be delivered only in 2015.”
The analyst named Yang Ming its “key sell” stock within its container shipping coverage.
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