中外运航运(00368) 　　Key takeaways 　　Recent BDI rebound caused by: 1) peak season: shippingdemand for grain in the northern hemisphere and coal for winterwill peak end-3Q/end-4Q; 2) more iron ore shipments asmining companies make use of rising iron ore prices; 3) bettermarket structure: the company guides supply-demandimprovement and estimates yearly average BDI of ~1,000 in2017 could be possible, given a bull case. 　　Positive on earnings: Some company Handysize and Panamaxroutes have made net profits starting in September. Most of SSL’scapacity is on spot markets, so it can benefit the most fromthe rising BDI. Given rising freight rates, SSL is consideringlocking in profitable rates with time charter agreements. 　　SSL has a lower-than-average breakeven point (BDI 950) thanksto low vessel purchasing price and little interest bearing debt. 　　Will rising BDI stimulate new vessel orders? The companyholds a relatively positive view. Market players are more rationaland cautious after recent year losses. Secondhand vessels arecheaper than new and may be chosen to expand capacity. 　　SSL’s shipment cargo type in-line with dry bulk industry:Minerals (~30%), coal (~30%), grain/fertilizer (~20%), others(steel/cement etc.) 　　Recommendation 　　We expect a loss of US$39mn in 2016, profit of US$7mn in 2017,and 600% surge to US$49mn in 2018. Our earnings forecastdoes not include enhancement from potential integration withCMG. If SSL purchases CMES’s dry bulk assets, 2017/18 earningscould be US$23mn/US$90mn. SSL is trading at 0.4x 2017e P/B,cheaper than sector’s 0.55x. Maintain Conviction BUY andTP of HK$1.93, or 0.5x 2017e P/B. Catalysts could be: 1)BDI rebound in peak season; 2) integration between Sinotrans &CSC and CMG. 　　Risks 　　Freight rates