Wan Hai Lines Ltd.

The stable outlook reflects our view that Wan Hai will improve its profitability significantly over the next two years, underpinned by rising freight rates and growing lifting volume, despite a possible increase in fuel cost. This reflects the overall favorable market conditions in the shipping industry led by the global economic recovery from the COVID-19 pandemic, as well as disciplined industry supply control. Through strengthened operating cash flow and flexible shareholder friendly action, Wan Hai could improve its ratio of FFO to debt to above 100% in 2021 and 70%-80% in 2022. This is despite the company's heightened capex, mainly for fleet expansion, over the same period. We may lower the long-term issuer credit rating on Wan Hai, if: the

...Freight rates and trade volume could remain robust in 2021. We expect freight rates to remain heightened at least until the second quarter of 2021 before gradually normalizing. That's because congestion at major ports in North America and strong demand for physical goods continue to strain container shipping capacity. It could take months for port congestion to improve and for supply and demand for container shipping to return to a balance. We project Wan Hai Lines Ltd.'s average freight rate for 2021 to grow by 40%-50% year on year. Freight rates have surged significantly since the second half of 2020 through the first quarter of 2021. Freight rates for Wan Hai's major service lines, including intra-Asia, Middle East, and U.S. west coast (USWC) posted strong growth, with 75%-90% growth rate in the first quarter of 2021 compared with the end of 2020. Wan Hai's lifting volume will also grow materially in 2021, especially for its USWC line, mainly fueled by the U.S. economic stimulus package....

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