Citi: COSCO Shipping Holdings’ third-quarter profit doubles quarter on quarter as signs of an Asia-Europe freight-rate bottom exceed Citi’s expectations

Why did third-quarter profit rebound sharply?

Core profit in the third quarter of 2026 was 17.2 billion yuan, up 127% quarter on quarter and 80% year on year; profit for the first three quarters represented 103% and 89% of Citi’s and the market’s full-year forecasts, respectively.
Total revenue per TEU rose 33% quarter on quarter, and the core margin improved by 10 percentage points to 23%. By route, unit revenue on the trans-Pacific, Asia-Europe and mainland China routes rose 53%, 32% and 7% quarter on quarter, respectively.
The rise in revenue was not driven solely by volume: third-quarter throughput grew 4.5% year on year, below 8% in the second quarter; Asia-Europe and trans-Pacific routes grew 15% and 13% respectively.

Total cost per TEU rose 15% quarter on quarter in the third quarter. Over the same period, low-sulfur fuel prices on a two-month lag rose 5% and one-year charter rates for New Panamax vessels rose 2%.
Port congestion and imbalances in import and export cargo flows pushed up empty-container repositioning costs. Together with labor cost inflation, this resulted in a larger increase in costs than the increases in fuel prices and charter rates over the same period. Meanwhile, the company’s increase in unit revenue was also below the 37% rise in the China Containerized Freight Index.

The company said clearer signs of a bottom in Asia-Europe freight rates had emerged since mid-to-late October, with exports of electric vehicles, lithium batteries and photovoltaic products growing significantly. Citi considers this assessment more positive than its own expectations for near-term freight rates.
Contract coverage on both the Asia-Europe and trans-Pacific routes is approximately 50%. Preliminary discussions indicate that 2027 Asia-Europe contract freight rates should be at least slightly higher than in 2026, excluding fuel costs; a separate fuel adjustment mechanism is expected to raise nominal contract rates further.
The company expects relatively strong trans-Pacific demand to help prevent freight rates from falling sharply after their previous sustained rise, but the market may enter a normal seasonal lull after the holiday shopping season ends. Extreme weather, port congestion, inland rail disruptions and insufficient terminal investment continue to constrain capacity supply.

Citi believes current risk and reward are broadly balanced, as measured by the 0.9 times expected 2026 price-to-book ratio stated in the report, and maintains its Neutral rating and HK$17.40 target price. The target price is based on a 2027 expected price-to-book ratio of 0.9 times and an expected core return on equity of approximately 9%.
At the end of the third quarter, the company’s estimated net cash per share after including lease liabilities was HK$7.4, equivalent to approximately 40% of its market capitalization at the time. Citi also noted that the share price could fall below its target if net cash is used for low-return acquisitions or fleet investment, or if freight rates decline faster than expected after Red Sea disruptions ease.