On Tuesday, HSBC lowered its rating on shares of COSCO SHIPPING Energy Transportation (1138:HK) from Hold to Reduce, setting a new price target of RMB7.50. The adjustment follows a significant rally in the company's share price, which outpaced the performance of both the Hang Seng Index and industry peers over the past month.
COSCO SHIPPING's shares witnessed an increase of 26% and 18% for its H and A shares respectively, compared to a 34% rise in the Hang Seng Index during the same period. In contrast, the average increase among peer companies was 2%.
The analyst from HSBC noted this outperformance amid improving Very Large Crude Carrier (VLCC) Time Charter Equivalent (TCE) rates, which have risen from around $26,000 per day in late August to approximately $36,000 per day by late September.
Typically, VLCC rates experience an uptick in the fourth quarter, historically tripling from September's rates. However, the analyst believes that the current share price of COSCO SHIPPING may have already factored in the anticipated seasonal increase in rates. The analyst suggests that the share price reflects expectations of improved performance, which have been partly driven by robust stimulus policies.
The new price target of RMB7.50 represents a recalibration of the stock's value in light of recent market movements and the analyst's assessment of future performance. The downgrade to Reduce indicates caution regarding the stock's potential for further price appreciation, given the recent sharp rise and the expectations already priced in.
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