Morgan Stanley has released a research note reaffirming its "Overweight" rating on COSCO Shipping Energy Transportation Co., Ltd. (01138), with a target price maintained at HK$26. The bank projects that the company's third-quarter earnings this year will show sequential improvement, driven by higher freight rates and improved vessel utilization.

Management believes the recent sharp surge in very large crude carrier (VLCC) freight rates primarily reflects a significant tightening of effective fleet capacity, which contrasts with rising cargo demand. Notably, three-year VLCC time-charter contracts in the current market have reached daily rates of US$100,000, which management views as providing a stronger medium-term pricing signal.

The company's management anticipates that most of the sharp freight rate increases seen in September will be reflected in fourth-quarter results. Additionally, potential disruptions in the Strait of Hormuz may persist longer than initially expected, which could support a sustained bull market for tanker shipping.

COSCO Shipping Energy currently holds six VLCC newbuilding orders and has six chartered-in VLCCs scheduled for delivery between 2027 and 2028. Despite the current elevated spot freight rates, management remains prudent regarding fleet expansion through additional chartering.