Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Bottom-Up

AP Moeller - Maersk A/S / Equity Bottom-Up

<ul>
<li>Our monthly index suggests that container rates have bottomed, with easier comps in H2</li>
<li>Lower fuel has been a tailwind for carriers for several months, but that could change</li>
<li>We still think the worst has passed for carriers, a few of which have performed well in '23</li>
</ul>


Our monthly index suggests that container rates have bottomed, with easier comps in H2
Lower fuel has been a tailwind for carriers for several months, but that could change
We still think the worst has passed for carriers, a few of which have performed well in '23


Monthly Container Shipping Tracker | Rates Bottoming | Fuel Tailwind Easing? | (August 2023)

<ul>
<li>On Friday container giant <a href="https://www.smartkarma.com/entities/ap-moeller-maersk-a-s" target="_blank" data-smartkarma-citation="entities:22428:1" rel="noopener">AP Moeller - Maersk A/S (MAERSKB DC)</a> raised FY23 guidance, lifting the bottom of its EBITDA range &amp; increasing target FCF from US$2bn+ to US$3bn+</li>
<li>Despite beating Q2 expectations and raising FY guidance, management warned that the "normalization" of container shipping conditions is taking longer than anticipated</li>
<li>Maersk's shares traded down on the news, but the company's statements confirm our thesis: market conditions in 2023 are not nearly as bad as expected (Maersk's TTM ROIC 34%!)</li>
</ul>


On Friday container giant AP Moeller - Maersk A/S (MAERSKB DC) raised FY23 guidance, lifting the bottom of its EBITDA range &amp; increasing target FCF from US$2bn+ to US$3bn+
Despite beating Q2 expectations and raising FY guidance, management warned that the "normalization" of container shipping conditions is taking longer than anticipated
Maersk's shares traded down on the news, but the company's statements confirm our thesis: market conditions in 2023 are not nearly as bad as expected (Maersk's TTM ROIC 34%!)


Maersk Q2: Raised FY23 Guidance | Beat on Earnings, Too | Takeaway: Conditions Not Disastrous

Thematic (Sector/Industry)

<ul>
<li>US PPI has steadily eased over the past 15 months, and lower transportation costs have helped</li>
<li>US long-distance trucking and international air freight costs have fallen dramatically from the peak, but ocean freight has surprisingly remained close to peak levels</li>
<li>We believe falling transportation costs are unlikely to provide "tailwinds" for much longer</li>
</ul>


US PPI has steadily eased over the past 15 months, and lower transportation costs have helped
US long-distance trucking and international air freight costs have fallen dramatically from the peak, but ocean freight has surprisingly remained close to peak levels
We believe falling transportation costs are unlikely to provide "tailwinds" for much longer


US PPI: Tailwinds from Transportation Price Collapse Set to Subside in H2 2023

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/kawasaki-kisen-kaisha-ltd" target="_blank" data-smartkarma-citation="entities:3548:1" rel="noopener">Kawasaki Kisen Kaisha (9107 JP)</a> has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.</li>
<li>At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.</li>
<li>The dividend has been "lowered" to ¥200/share, which is higher than expected. That's for this year.</li>
</ul>



Kawasaki Kisen Kaisha (9107 JP) has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.
At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.
The dividend has been "lowered" to ¥200/share, which is higher than expected. That's for this year.


KLINE (9107) - Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come

<ul>
<li>Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. </li>
<li>Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.</li>
<li>Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.</li>
</ul>


Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. 
Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.
Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.


Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

Denmark

A.P. Moller - Maersk A/S operates as an integrated transport and logistics company. The Company offers container vessels, supply ships, special vessels, terminals, tug boat activities and reefer container box manufacturing. A.P. Moller-Maersk serves clients worldwide.

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AP Moller - Maersk A/S (MAERSKA DC)

Monthly Container Shipping Tracker | Rates Bottoming | Fuel Tailwind Easing? | (August 2023)

Our analysis shows pricing momentum for carriers remains depressed, but stable. In other words, conditions are not deteriorating. But fuel prices...

Tracking Traffic

Maersk Q2: Raised FY23 Guidance | Beat on Earnings, Too | Takeaway: Conditions Not Disastrous

Maersk Q2 results beat expectations handily. More importantly, the company raised FY23 guidance for EBITDA and FCF, though management also...

Tracking Traffic

US PPI: Tailwinds from Transportation Price Collapse Set to Subside in H2 2023

Falling costs for multiple modes of transportation have provided a strong "tailwind" to US PPI, which has declined steadily over the past 15...

Tracking Traffic

KLINE (9107) - Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come

KLINE generated better-than-expected earnings, and a better-than-expected forecast, higher-than-expected div guidance, and an unexpected...

Travis Lundy

Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

Maersk's Q1 result showed a steep Y/Y decline in earnings due to lower rates. But RoE is fine, and the company maintained guidance, which supports...

Tracking Traffic

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