Evergreen Marine Corp's (長榮海運) shares may sink as fast as its profits.
Analysts reduced their ratings on Taiwan's biggest shipping company and trimmed their net income estimates, citing falling freight rates because of an oversupply of vessels and a slowing global economy that's crimped demand for the island's Taiwan-made mobile phones, computers and monitors.
It's a stock "you don't need to be in," said UBS Warburg analyst David Lepper, who has a "reduce" recommendation on the stock since July.
"What we've got is a situation where the industry is adding container vessels while trade is dropping."
For the shipper, the news doesn't get better. UBS Warburg expects the global container fleet to increase 12 percent this year and 11 percent in 2002, while Evergreen Marine's earnings are also expected to take a whack from its loss-making Eva Airways Corp (
Evergreen Marine shares slumped as much as 16 percent last week to NT$14.10 and are down 32 percent this year. Its stock fell 0.7 percent today to NT$14.80.
Salomon Smith Barney Inc analyst Charles de Trenck expects the stock to slump another 33 percent to NT$10 and predicts the company won't make a profit this year without the benefit of one-time gains such as the sale of ships.
Credit Suisse First Boston (CSFB) Inc analyst Nam Nguyen last week downgraded Taiwan's biggest shipping company to "sell," citing a loss in its container business.
Container rates on Evergreen Marine's core Asian and European routes fell 9 percent this year. Profit in the six months to June 30 was little changed from a year ago at NT$302.9 million (US$8.7 million) because of one-time gains.
Freight rates are not expected to pick up any time soon. The global economy is in a slump and demand for products from Asia that need to be shipped is not expected to recover soon.
Electronic exports from Taiwan in August slumped 42 percent from a year ago.
Evergreen Marine's 25 percent stake in loss-making Eva Airways also caused analysts to cut their forecasts for the shipping company's net income this year. Eva Airways losses have to be accounted for in Evergreen Marine's profit and loss statement.
Taiwan's second-largest airline expects to make a full-year loss of NT$3.35 billion this year because of falling demand for airfreight services.
CSFB cut its net income forecast for Evergreen Marine by 48 percent to NT$557 million, citing losses at Eva Airways as the "main culprit." Still, CSFB said foreign currency gains and asset sales may help Evergreen Marine report a profit this year.
``The marine cargo transport business is tough right now and a company is very lucky if it can make a profit,'' said Cheng Yi-sheng, who helps manage NT$1.5 billion ($40 million) in investments at Taiwan Securities Ltd (
As freight rates dropped, Evergreen Marine, whose 63-ship fleet ranks it among the six biggest shipping companies in the world, failed to invest in other parts of the business to make it more effective.
Investors say the company hasn't put any money into technology to upgrade its systems to keep track of shipments and ensure its shipping, port and other businesses are working efficiently together.
In addition, hopes of trade links between Taiwan and China in the near future have quickly evaporated after China rebuffed Taiwan's proposal for direct transport links.
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