Action
　　We expect COSCO Shipping Holdings’ earnings in 2Q20 to jump toRmb800mn from Rmb292mn in 1Q20 (Rmb76mn excludingnon-recurring items) and Rmb550mn in 2Q19. Freight rates on USWest Coast routes rose again on July 31 (up 17% WoW toUS$3,167/FEU) and hit a record high since the data was released in2010. We expect the firm’s peak-season earnings to beatexpectations. We raise our earnings forecast and upgrade COSCOShipping Holdings’ A-shares to OUTPERFORM.
　　Reasoning
　　Leading container shipping companies with a well-established fleetof large vessels are shifting their strategic focus from market shareexpansion to value chain expansion; they have been acquiringrelated assets such as land logistics and freight forwarding in the pastthree years. New shipbuilding orders in hand are at a historic low. Weexpect a more favorable supply and demand situation and animproved competitive landscape to drive healthy development of theindustry in the long term. We believe this will lead to animprovement in industry profitability and a re-rating of sectorvaluation.
　　Large earnings upside in an upward cycle. Other things being equal,we estimate each US$10/TEU or 1% rise in the average freight rate oninternational routes will increase COSCO Shipping Holdings’ 2020earnings by about Rmb1.3bn.
　　How do we differ from the market? Our 2020 earnings forecast ofRmb2.94bn is well above market consensus (Rmb1.73bn for theA-shares according to Wind Info, and Rmb820mn for H-sharesaccording to Bloomberg). Potential catalysts: Rises in European/USPMI and China’s PMI new export orders index; improvement in 2Q20earnings; boost of rising freight rates to 3Q20 earnings (possibly overRmb1.5bn).
　　Earnings forecast and valuation
　　We raise 2020 and 2021 earnings forecasts 15% to Rmb2.94bn and3% to Rmb3.51bn. The firm’s A-shares are trading at 1.5x 2020e P/Band 19.8x 2020e P/E. We upgrade the A-shares to OUTPERFORMand lift TP 14% to Rmb5.62 (1.8x 2020e P/B with 18% upside). Thefirm’s H-shares are trading at 0.9x 2020e P/B and 12x 2020e P/E. Wemaintain OUTPERFORM for the H-shares and lift TP 10% to HK$4.22(1.2x 2020e P/B with 31% upside).
　　Risks
　　Resurgence of COVID-19; idle capacity quickly returning to market;surge in new ship orders; escalation of trade friction.