UBS: Raises SITC (01308) target price to 33.8 Hong Kong dollars, positive outlook for second quarter volume and freight prospects.

UBS released a research report stating that it has raised its profit forecast for SITC (01308) for 2026 to 2027 by 1% to 6% to reflect stronger than expected volume and freight rates this year, but remains cautious on the expansion of the industry's overall feeder fleet beyond 2027. The bank reiterated its "neutral" rating, with a target price raised from HK$30 to HK$33.8. The report indicated that second quarter volume and freight rates for 2026 are expected to recover year-on-year, with limited impact from geopolitical tensions. The bank recently invited SITC to participate in the Asian Investment Forum, where the management expressed confidence in demand for shipping in the Asian region and plans to continue expanding its fleet capacity. In terms of geopolitical tensions in the Middle East, the management expects limited downside risks and anticipates that SITC will benefit from the rebound in container freight rates since March. The management revealed that freight rates were under pressure in the first quarter of this year, declining by about 5% year-on-year. However, with the escalation of geopolitical tensions in the Middle East, freight rates have shown a strong rebound, surpassing last year's levels. It is expected that the second quarter will see year-on-year growth in both freight rates and volume. Despite the doubling of fuel costs from earlier this year, SITC is able to fully pass on the cost increase to customers through fuel surcharges. The management noted that fuel costs account for approximately 20% of total operating costs, with the average fuel price in April at around $630 per ton compared to $520 per ton in 2025. In terms of competitiveness, the company has a cost advantage of about $100 per twenty-foot equivalent unit (TEU) compared to its peers, as well as an average freight rate premium of approximately $100. According to the vessel delivery schedule, SITC will receive two 1,800 TEU vessels in 2026, 11 vessels in 2027, 13 vessels in 2028, and 6 vessels in 2029.