Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Equity Bottom-Up

On the afternoon of Friday, March 23rd, <a href="https://www.smartkarma.com/entities/15428" target="_blank" data-smartkarma-citation="entities:15428:1">Evergreen Marine Corp Ltd (2603 TT)</a> reported FY17 preliminary results, which show the company made Operating and Net losses in Q417. After several consecutive quarters of steady improvements in core profitability, we were surprised to see the company post a significant Operating loss in the December quarter -- and we believe we are far more pessimistic on the container sector cycle than many observers, having turned negative on the sector several months…

On the afternoon of Friday, March 23rd, Evergreen Marine Corp Ltd (2603 TT) reported FY17 preliminary results, which show the company made Operating and Net losses in Q417. After several consecutive quarters of steady improvements in core profitability, we were surprised to see the company post a significant Operating loss in the December quarter -- and we believe we are far more pessimistic on the container sector cycle than many observers, having turned negative on the sector several months…

'Trade War' Chatter & A Surprise Q4 Loss: Time to Revisit Long CAL/Short Evergreen Pair Trade

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Event-Driven

Currently, Daewoo Shipbuilding &amp; Marine Engineering (042660 KS) is one of the Korea's hottest stocks that are making many investors quite happy. This year alone, DSME shares have more than doubled. (DSME 3M price chart - Courtesy Naver Finance)DateClosing price (₩)Daily ΔTrade volumeTrade value (₩)Market cap (₩ mil)2018/03/2026,6505.34%1,204,51431,556,428,4502,842,3902018/03/1925,300-2.88%408,38410,348,629,6502,698,4042018/03/1626,050-2.62%534,92313,928,307,2002,778,3962018/03/1526,7505.31%1,052,39527,262,524,3002,853,0562018/03/1425,400-6.45%1,142,87729,362,840,0502,709,0702018/03/1327,150-1.81%1,340,09435,770,234,1502,895,7182018/03/1227,6502.22%455,95812,522,455,5002,949,0462018/03/0927,0500.56%1,003,74527,637,639,6502,885,0532018/03/0826,9002.09%817,98122,014,244,9002,869,0542018/03/0726,3500.96%1,482,88139,900,758,8502,810,3932018/03/0626,10010.36%1,267,72732,251,616,7002,783,7292018/03/0523,650-3.67%497,17911,979,914,2502,522,4212018/03/0224,550-1.80%529,67112,948,693,5002,618,4122018/02/2825,0000.20%733,64818,568,280,4502,666,4072018/02/2724,9500.00%604,30014,963,480,3002,661,0742018/02/2624,9501.84%961,53724,143,424,4502,661,0742018/02/2324,5007.69%1,670,74940,599,078,9002,613,0792018/02/2222,7500.66%1,109,21525,570,608,1502,426,4312018/02/2122,6006.10%730,55616,186,340,6502,410,4322018/02/2021,300-2.52%639,38013,895,574,0502,271,7792018/02/1921,8508.98%858,00518,578,074,7502,330,4402018/02/1420,0505.80%306,9846,057,677,0002,138,4592018/02/1318,950-2.82%410,5077,903,616,3502,021,1372018/02/1219,500-5.34%1,020,22820,062,908,7002,079,7982018/02/0920,600-3.96%632,15012,995,170,9002,197,1202018/02/0821,4502.63%964,18020,247,724,0002,287,7772018/02/0720,900-5.00%686,58815,029,868,9502,229,1162018/02/0622,0000.00%1,303,24727,957,493,5002,346,4382018/02/0522,000-5.78%789,14317,761,460,7502,346,4382018/02/0223,350-0.43%928,45821,767,425,5502,490,4242018/02/0123,450-3.30%689,13516,222,407,5502,501,0902018/01/3124,2502.11%1,368,90831,629,987,2002,586,4152018/01/3023,7505.79%1,859,12943,981,051,4502,533,0872018/01/2922,4503.70%953,73721,266,539,3502,394,4342018/01/2621,6502.36%1,234,47427,171,036,7002,309,1092018/01/2521,1506.82%1,587,98833,237,115,9002,255,7802018/01/2419,8001.54%769,98715,247,511,4502,111,7952018/01/2319,5000.52%678,05013,101,614,0502,079,7982018/01/2219,4007.18%1,091,23720,707,064,0502,069,1322018/01/1918,1000.84%244,9824,436,406,7501,930,4792018/01/1817,950-1.10%247,3804,416,216,1501,914,4802018/01/1718,150-4.47%728,90513,218,451,1501,935,8122018/01/1619,000-0.52%637,65612,001,978,7502,026,4692018/01/1519,10010.40%1,839,22434,190,721,5502,037,1352018/01/1217,3008.81%905,95715,390,516,3001,845,1542018/01/1115,9000.00%325,2265,199,480,8501,695,8352018/01/1015,9003.25%426,6556,809,135,7501,695,8352018/01/0915,400-3.14%264,0534,092,737,8001,642,5072018/01/0815,900-3.93%284,6414,550,992,8001,669,9582018/01/0516,5500.30%244,2824,036,460,9501,738,2272018/01/0416,500-4.07%526,4589,002,148,7001,732,9752018/01/0317,20012.05%819,97313,694,498,4001,806,4962018/01/0215,35010.43%382,0635,619,200,4001,612,192Source: KRXWhat's really going on here?Simple. DSME is getting really a lot of support from the government through the KDB which owns a 55.72% stake in DSME.DSME shareholding structureKDB59,738,21155.72%KEB Hana Bank9,015,5638.41%Woori Bank1,983,8411.85%KB Bank1,982,6511.85%Hana Financial Investment371,7470.35%Jeong Seong-rib7,4560.01%KB Securities7,4100.01%Total73,106,87968.19%Source: FnGuideWhat's the story here? Last year, Hyundai Merchant Marine (011200 KS) needed 10 300Kt grade VLCCs (very large crude oil carrier) worth about ₩1tril. It was arranged that HMM would get 5 VLCCs in the first round and another 5 in the second round later. With the carefully executed coordination of the KDB, all of the 5 VLCCs ordered by HMM for the first round went to DSME. No wonder huh? The KDB is the major shareholder of both HMM and DSME, and the KDB needed to maximize the valuation of both companies in order to make an exit. Then where did this ₩1tril come from? This was the money from the ₩2.6tril worth of the shipbuilding support program fund set up by the government soon after the collapse of Hanjin Shipping.DMSE's expected annual sales size for this year (2018) is about ₩8.4tril (FnGuide consensus compiled by the 5 local brokerages). So, this'd be only about 6% of its total annual sales. But what's important is how significant this would be to DSME's profitability. It is generally thought and believed that HMM's 5 ship orders are the main contributor to DSME's dramatic turnaround this year.FnGuide market consensus for DSME (₩ bil)2018E2019ESales8,469.37,311.7OP275.5312.3NP attributable to controlling stake276.2315.7Assets11,982.311,220.2Liabilities8,519.47,483.7Equity attributable to controlling stake3,888.24,159.6EPS (₩)2,5792,945BPS (₩)36,26838,800PER (x)9.818.59PBR (x)0.700.65Source: FnGuideHMM's first round of order (5 VLCCs) was worth ₩475.7bil. The original plan was HMM would place another 5 VLCCs order to DSME early this year. But HMM opted not to do it. Instead, it is being said that HMM will focus on container ship building. The current plan is building a total of 20 large container ships (12 22K TEU grade container ships and 8 14K TEU grade container ships) as a part of its grand plan to become a 1M TEU shipping company (HMM's current size is 330K TEU. No worry for DSME though because it is widely expected that most of these container ship building orders will again go to DSME.Thanks to the government (the KDB)'s huge help, DSME is really shining compared with its local peers valuation wise. It is the only one to turn a serious profit this year among Korea's Big Three shipbuilders. It will generate more sales than Samsung Heavy and way more profits than even Hyundai Heavy. But its market cap is still only about half of Samsung Heavy. On a PBR, DSME may not look terribly undervalued compared with Samsung Heavy. But considering that a large part of Samsung Heavy's assets are stuck with the struggling offshore plant business, we really come down to this point that DSME is seriously undervalued compared with Samsung Heavy. Yes, this means that DSME shares still seem to have more upside potential.FnGuide market consensus for DSME (₩ bil)DSMEHyundai HeavySamsung Heavy2018E2019E2018E2019E2018E2019ESales8,469.37,311.713,609.015,024.06,843.17,719.2OP275.5312.3-116.7206.179.738.9NP to controlling stake276.2315.7-90.2127.373.638.3Assets11,982.311,220.231,425.631,527.413,700.413,862.4Liabilities8,519.47,483.717,482.417,428.27,094.47,693.6Equity to controlling stake3,888.24,159.613,943.214,099.36,606.06,168.8EPS (₩)2,5792,945-1,3541,84118998BPS (₩)36,26838,800197,099198,67020,01618,521PER (x)9.818.59N/A76.8743.3883.25PBR (x)0.700.650.720.710.410.44Market cap (as of Mar 20)2,698.49,786.95,157.6Source: FnGuide

DSME, HMM & KDB - Understanding Relationship Dynamics

We began to turn cautious on container shipping last Summer and became more negative as Summer turned to Fall. Our view was that average freight rates and carrier profitability had improved sharply in the months following <a href="https://www.smartkarma.com/entities/18689" target="_blank" data-smartkarma-citation="entities:18689:1">Hanjin Shipping Co Ltd (117930 KS)</a>'s August 2016 bankruptcy, and that further fundamental improvements would be much harder to come by. About six months after turning cautious on container shipping, we remain negative on the sector, and we believe 2018 will turn out to be worse…

We began to turn cautious on container shipping last Summer and became more negative as Summer turned to Fall. Our view was that average freight rates and carrier profitability had improved sharply in the months following Hanjin Shipping Co Ltd (117930 KS)'s August 2016 bankruptcy, and that further fundamental improvements would be much harder to come by. About six months after turning cautious on container shipping, we remain negative on the sector, and we believe 2018 will turn out to be worse…

Container Shipping Sector: Six Months of Declining Share Prices Explained in Three Charts

Equity analyst - Containers, Drewry Maritime Financial Research

Nilesh Tiwary

Equity analyst - Containers

Maritime Sector, Equity & Credit Research

Drewry Maritime Financial Research

With no ties to other players in the shipping, finance or banking world, we provide a uniquely impartial view of the markets and companies we cover. Our parent organization, Drewry is a leading independent provider of research services to the maritime and shipping industry, employing over 100 professionals across an international network of offices in London, Delhi, Singapore and Shanghai. Combining our market-leading resources with seasoned sector expertise DFRS offers a highly differentiated and comprehensive range of investment and financial research services to lenders and prospective investors in publicly listed maritime and shipping companies. The full service of reports, supporting resources and sector orientated webinars provides our clients with the most complete picture of the organisations under coverage as is possible. We have been charting and analysing the world’s maritime markets for more than 40 years. This unrivalled intelligence and understanding provides the foundation of our research service. Our analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.

Problems galore: HMM’s woes seem to be compounding, despite the industry facing one of its best periods in 2017. Not only did the company fail to register a single profit last year, but has even failed to contain its ballooning debt. As of 3Q17, HMM’s overall debt of KRW 2tr (USD 1.8bn) and net gearing of 250% is among the highest in the industry. Additionally, even if the scenario unfolds positively starting 2019, the charter payments will come back to haunt the company, raising its operating…

Problems galore: HMM’s woes seem to be compounding, despite the industry facing one of its best periods in 2017. Not only did the company fail to register a single profit last year, but has even failed to contain its ballooning debt. As of 3Q17, HMM’s overall debt of KRW 2tr (USD 1.8bn) and net gearing of 250% is among the highest in the industry. Additionally, even if the scenario unfolds positively starting 2019, the charter payments will come back to haunt the company, raising its operating…

Hyundai Merchant Marine - Recovery Not in Sight

Thematic (Sector/Industry)

SummaryThe major indicators of container shipping in 2017 remained more firm than in 2016. The y/y comparisons for many data sets depict robust improvement. However, the outlook for 2018 is mixed. The supply-demand balance will improve slightly, demand growth will continue to be strong, and freight rates and the profits of carriers will strengthen at lower-than-expected rates as several temporary factors create a bump on the road to recovery. The creation of bigger alliances, and the escalation of…

SummaryThe major indicators of container shipping in 2017 remained more firm than in 2016. The y/y comparisons for many data sets depict robust improvement. However, the outlook for 2018 is mixed.  The supply-demand balance will improve slightly, demand growth will continue to be strong, and freight rates and the profits of carriers will strengthen at lower-than-expected rates as several temporary factors create a bump on the road to recovery.  The creation of bigger alliances, and the escalation of…

Container Shipping 2018 - Demand Buoyancy Drives Positive Outlook

South Korea

Pan Ocean Co., Ltd. is a Korean shipping company that engages in marine transportation business. The Company provides bulk cargo carrier, pure car and truck carrier, container and tanker services.

Korea Line Corporation (KLC) owns and operates a fleet of vessels that carry bulk cargo, such as iron core, coal, hot coils, and liquefied natural gas (LNG). The Company provides exclusive lines for Pohang Iron & Steel, Korea Gas, and Korea Electric under long term contracts.  KLC also offers tramp services, and transports grain, sugar, logs, minerals, and steel products.

Heung-A Shipping Co., Ltd. provides shipping trade services.  The Company also provides chemical tankers to transport petrochemicals in areas that includes Japan, Taiwan, China, and Southeast Asian regions.

KSS LINE LTD provides marine transportation services.  The Company mainly transports items such as gas and chemical products.  KSS LINE provides worldwide gas product transportation, Far East and South East Asia area for chemical product shipping.

Eusu Holdings Co., Ltd. is a holding company, which operates marine transportation services such as container service, bulk service, terminal service, and ship lease.

Korean Air Lines Co., Ltd. operates air transportation services.  The Company's services include passenger and cargo transportation, aircraft maintenance, and air catering.  Korean Air Lines provides domestic and international airline services.

Hyundai Glovis Co., Ltd. provides domestic and international logistic services. The Company's services include domestic transportation, storage, packaging, vehicle logistic, and logistic consulting.  GLOVIS also runs automobile auction market for used vehicle.

Hanjin KAL Corporation is a holding company. The Company, through its subsidiaries, engages in airline, hotel, and travel related services. Hanjin also invests in real estates.

Sun Kwang Co., Ltd. provides harbor loading and unloading, general and hard goods transportation, warehouse, cargo handling, container handling, and stevedoring services.  The Company also extracts and sells sea sand for ready mixed concrete manufacturing.

CJ Logistics Corporation provides logistics services. The Company provides land transportation, maritime transportation, harbor unloading, cargo storage, international logistics processing, and other services. CJ Logistics also provides internet home shopping services. CJ Logistics serves customers worldwide.

Orient Overseas International Ltd, through its subsidiaries, owns and leases ships, operates terminals, and provides freight forwarding and container transportation services.  The Company also develops and invests in properties, leases equipment, and invests in securities.

Kirby Corporation operates a fleet of inland tank barges.  The Company transports industrial chemicals, refined petroleum products, black oil products, and agricultural chemicals.  Kirby also overhauls and services diesel engines employed in marine, power generation, and rail applications.

Kawasaki Kisen Kaisha, Ltd. operates marine cargo and passenger transportation around the world.  The Company provides ocean liner, bulk carrier, car carrier, unscheduled specialized carrier, and energy transportation services. The Company also offers insurance, warehousing, and land transportation services.  Items transported include automobile, grain, petroleum, coal, iron ore, and wood chip.

MISC Berhad owns ships and operates shipping and related services. Through its subsidiaries, the Company provides trucking, warehousing and forwarding service, containers and prime movers repair, and container haulage. MISC Berhad also has operation in trucking and launch operator.

Yang Ming Marine Transport provides transportation services and handles domestic and foreign maritime services on cargos.  The Company also operates warehouse, wharf, tug, barge, and container freight station services as well as repairs, leases, and sells containers and chassis.

Wan Hai Lines Ltd. provides marine transportation and shipping agent services. The Company also purchases, sells, and leases vessels and containers as well as operates container freight stations.

SITC International Holdings Company Ltd. offers marine shipping services.  The Company offers container liner shipping, freight forwarding, customs clearance, shipping agency, and ship brokerage services.  SITC operates in Asia.

Evergreen Marine Corp. (Taiwan) Ltd. transports freight by ships. The Company operates container ships to move freight throughout the world. Evergreen Marine has interests in terminals, airline operations and motor freight transportation, as well as container manufacturing.

Mitsui O.S.K. Lines, Ltd. provides marine transportation, warehousing, and cargo handling services.  The Company operates container ship, specialized carrier, oil tankers, and ferry.  Items transported include coal, iron ore, grain, logs, aluminum, cement, industrial salt, copper ore, wood chips, paper products, chemical products, gasoline and other petroleum products, LPG, and other cargoes.

COSCO SHIPPING Energy Transportation Co., Ltd. offers marine shipping services. The Company provides refined oil transportation, crude oil transportation, and other services. COSCO SHIPPING Energy Transportation also ships iron ores, dry bulks, coal, and other products.

Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK)

Cosco Shipping Energy Transportation Co. Ltd. (H)

HMM Co., Ltd. provides marine transportation services.  The Company commands different types of vessels including full container vessels, oil tankers, car carriers, LNG carriers, bulk carriers, and tramps.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

HMM Co., Ltd. (011200 KS)

'Trade War' Chatter & A Surprise Q4 Loss: Time to Revisit Long CAL/Short Evergreen Pair Trade

On the afternoon of Friday, March 23rd, Evergreen Marine Corp Ltd (2603 TT) reported FY17 preliminary results, which show the company made...

Daniel Hellberg

DSME, HMM & KDB - Understanding Relationship Dynamics

Currently, Daewoo Shipbuilding & Marine Engineering (042660 KS) is one of the Korea's hottest stocks that are making many investors quite...

Sanghyun Park

Hyundai Merchant Marine - Recovery Not in Sight

Problems galore: HMM’s woes seem to be compounding, despite the industry facing one of its best periods in 2017. Not only did the company fail to...

Drewry Maritime Financial Research

Container Shipping 2018 - Demand Buoyancy Drives Positive Outlook

SummaryThe major indicators of container shipping in 2017 remained more firm than in 2016. The y/y comparisons for many data sets depict robust...

Drewry Maritime Financial Research

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

'Trade War' Chatter & A Surprise Q4 Loss: Time to Revisit Long CAL/Short Evergreen Pair Trade

On the afternoon of Friday, March 23rd, Evergreen Marine Corp Ltd (2603 TT) reported FY17 preliminary results, which show the company made...

Daniel Hellberg

DSME, HMM & KDB - Understanding Relationship Dynamics

Currently, Daewoo Shipbuilding & Marine Engineering (042660 KS) is one of the Korea's hottest stocks that are making many investors quite...

Sanghyun Park

Container Shipping Sector: Six Months of Declining Share Prices Explained in Three Charts

We began to turn cautious on container shipping last Summer and became more negative as Summer turned to Fall. Our view was that average freight...

Daniel Hellberg

Hyundai Merchant Marine - Recovery Not in Sight

Problems galore: HMM’s woes seem to be compounding, despite the industry facing one of its best periods in 2017. Not only did the company fail to...

Drewry Maritime Financial Research

Container Shipping 2018 - Demand Buoyancy Drives Positive Outlook

SummaryThe major indicators of container shipping in 2017 remained more firm than in 2016. The y/y comparisons for many data sets depict robust...

Drewry Maritime Financial Research