Why did profit miss expectations despite higher third-quarter freight rates?

  • COSCO Shipping Holdings reported net profit of 17 billion yuan for the third quarter of 2026, below BofA’s previous forecast of 19 billion to 20 billion yuan. Unit costs rose 9% quarter on quarter, with fuel and cargo-related costs exceeding the bank’s expectations.
  • Third-quarter shipping volume grew a subdued 4.5% year on year, with short-haul routes affected by congestion. Meanwhile, average freight rates rose 33% quarter on quarter, exceeding BofA’s expectations; transpacific rates rose 52% and Asia-Europe rates rose 32%.

Why are fourth-quarter freight rates expected to remain resilient?

  • BofA expects average freight rates to fall just 2% quarter on quarter in the fourth quarter of 2026, with net profit of about 16.5 billion yuan, a slight decline from the third quarter.
  • The company said fourth-quarter demand on transpacific routes was stronger than is typical for the off-season, while spot rates on Asia-Europe routes showed signs of bottoming. Based on preliminary negotiations, the company believes actual contract rates on Asia-Europe routes could rise modestly year on year in 2027.

How does the view of the cycle differ after the earnings forecast upgrades?

  • Assuming freight rates stay high for longer, BofA raised its 2026 net profit forecast from 43.315 billion yuan to 47.125 billion yuan, above the market consensus forecast of 34 billion yuan cited in the report.
  • The 2027 net profit forecast was sharply raised from 2.135 billion yuan to 23.773 billion yuan, but the bank still expects a loss of 10.667 billion yuan in 2028. BofA believes new vessel deliveries and the reopening of Red Sea routes will increase supply pressure on the container shipping industry; the company has begun returning its backhaul voyages to the Red Sea.

Why did BofA raise its price targets while maintaining underperform ratings?

  • BofA believes the freight-rate resilience supporting recent earnings is already reflected in valuations, while industry headwinds for 2027–2028 are building, so it maintained underperform ratings on the A and H shares.
  • The bank raised its H-share price target from HK$13.5 to HK$14, valuing the shares at 0.7 times book value as of December 2026; it raised its A-share target from 16 yuan to 16.5 yuan, using the H-share valuation and the average price gap over the past three years as a reference and assuming a 30% premium.