HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Cosco Shipping Energy Transportation Co. Ltd. (H) / Equity Bottom-Up

Cosco Shipping Energy Transportation Co. Ltd. (H)

<ul>
<li>Despite YTD strengths in share price, <a href="https://www.smartkarma.com/entities/cosco-shipping-energy-tran-h" target="_blank" data-smartkarma-citation="entities:646:1" rel="noopener">Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK)</a> is still cheap at 5.7x PER and 0.9x P/B.</li>
<li>VLCC is forecast to stay undersupplied in FY24 and FY25, supporting the rates and CSET's profitability. YTD, the VLCC rates have recovered by 19.5%.</li>
<li>LNG transportation generated 19% of FY23 earnings. With 40 more vessels on order, compared with a current fleet of 43, there is immense upside from this segment.</li>
</ul>


Despite YTD strengths in share price, Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) is still cheap at 5.7x PER and 0.9x P/B.
VLCC is forecast to stay undersupplied in FY24 and FY25, supporting the rates and CSET's profitability. YTD, the VLCC rates have recovered by 19.5%.
LNG transportation generated 19% of FY23 earnings. With 40 more vessels on order, compared with a current fleet of 43, there is immense upside from this segment.


COSCO Shipping Energy (1138 HK): Surfing the High Tide

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

<ul>
<li>The Supply/ Demand imbalance in tankers will persist for longer, supporting earnings</li>
<li>A beneficiary of increased global tensions and higher oil and gas prices</li>
<li>Proposed Stock option scheme incentives management in the right way</li>
</ul>


The Supply/ Demand imbalance in tankers will persist for longer, supporting earnings
A beneficiary of increased global tensions and higher oil and gas prices
Proposed Stock option scheme incentives management in the right way


Cosco Shipping Energy 1138.HK - Higher for Longer

<ul>
<li>The 20% retreat in the share price of <a href="https://www.smartkarma.com/entities/cosco-shipping-energy-tran-h" target="_blank" data-smartkarma-citation="entities:646:1" rel="noopener">Cosco Shipping Energy Transportation (1138 HK)</a> from the peak has well reflected the plunge in 3Q23 VLCC rates and 10% earnings downgrade.</li>
<li>4Q23 VLCC rates have rebounded 78.4% QoQ. Re-routing due to recent Houthi attacks on commercial ships at the Red Sea has reduced effective supply and is positive to rates.</li>
<li>Heightened energy security needs will drive demand. The medium-term supply pressure is mild as the VLCC orderbook equals just 2% of the existing fleet, fueling ROE for FY23-25F. </li>
</ul>


The 20% retreat in the share price of Cosco Shipping Energy Transportation (1138 HK) from the peak has well reflected the plunge in 3Q23 VLCC rates and 10% earnings downgrade.
4Q23 VLCC rates have rebounded 78.4% QoQ. Re-routing due to recent Houthi attacks on commercial ships at the Red Sea has reduced effective supply and is positive to rates.
Heightened energy security needs will drive demand. The medium-term supply pressure is mild as the VLCC orderbook equals just 2% of the existing fleet, fueling ROE for FY23-25F. 


COSCO Shipping Energy (1138 HK): Time for Another Look

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cosco-shipping-energy-tran-h" target="_blank" data-smartkarma-citation="entities:646:1" rel="noopener">Cosco Shipping Energy Transportation (1138 HK)</a> has rallied sharply on strong earnings recovery, but this is too excessive. We think unrealistic expectation has been built on 2H23 earnings.</li>
<li>Over the last three months, the spot VLCC rate has collapsed by 90%, indicating a weakened demand outlook. The resilient share price has clearly not yet factored in this movement. </li>
<li>The recent surge in crude oil is driven by supply, not demand, factors. This has led to a 14% increase in bunker price which will heighten CSET's fuel bill.  </li>
</ul>



Cosco Shipping Energy Transportation (1138 HK) has rallied sharply on strong earnings recovery, but this is too excessive. We think unrealistic expectation has been built on 2H23 earnings.
Over the last three months, the spot VLCC rate has collapsed by 90%, indicating a weakened demand outlook. The resilient share price has clearly not yet factored in this movement. 
The recent surge in crude oil is driven by supply, not demand, factors. This has led to a 14% increase in bunker price which will heighten CSET's fuel bill.  


COSCO Shipping Energy (1138 HK): Clearly Over-Optimistic

Thematic (Sector/Industry)

<ul>
<li>Continued tailwinds for oil tanker stocks with tight markets keeping rates high</li>
<li>The copper supply and demand story is becoming more widely known and speculative interest is rising</li>
<li>Oil corrects  as the geopolitical premium subsides,but the longer-term story remains intact</li>
</ul>


Continued tailwinds for oil tanker stocks with tight markets keeping rates high
The copper supply and demand story is becoming more widely known and speculative interest is rising
Oil corrects  as the geopolitical premium subsides,but the longer-term story remains intact


Update on Some of the HK Commodity Stocks We Follow

China

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)

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

COSCO Shipping Energy (1138 HK): Surfing the High Tide

CSET’s 1Q24 earnings of Rmb1.24bn (+12.8%) are better than we expected as the lower spot VLCC market has had no impact on profitability. Excluding...

Osbert Tang, CFA

Cosco Shipping Energy 1138.HK - Higher for Longer

Tanker market imbalance to continue, boosting earnings; global tensions and higher prices benefit the company; stock option scheme incentivizes...

Rikki Malik

COSCO Shipping Energy (1138 HK): Time for Another Look

The Red Sea crisis will continue to bode well for tanker demand as well as negatively impact capacity supply. CSET has rallied 25% from its recent...

Osbert Tang, CFA

COSCO Shipping Energy (1138 HK): Clearly Over-Optimistic

CSET's rally is excessive as the market has built up unrealistic expectations on 2H23 earnings. A weakened demand outlook and higher fuel cost...

Osbert Tang, CFA

Update on Some of the HK Commodity Stocks We Follow

Revisiting some of the Hong Kong commodity stocks we have highlighted previously. Tanker rates remain high, copper demand grows amid speculation,...

Rikki Malik

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

COSCO Shipping Energy (1138 HK): Surfing the High Tide

CSET’s 1Q24 earnings of Rmb1.24bn (+12.8%) are better than we expected as the lower spot VLCC market has had no impact on profitability. Excluding...

Osbert Tang, CFA

Cosco Shipping Energy 1138.HK - Higher for Longer

​Tanker market imbalance to continue, boosting earnings; global tensions and higher prices benefit the company; stock option scheme incentivizes...

Rikki Malik

COSCO Shipping Energy (1138 HK): Time for Another Look

The Red Sea crisis will continue to bode well for tanker demand as well as negatively impact capacity supply. CSET has rallied 25% from its recent...

Osbert Tang, CFA

COSCO Shipping Energy (1138 HK): Clearly Over-Optimistic

​CSET's rally is excessive as the market has built up unrealistic expectations on 2H23 earnings. A weakened demand outlook and higher fuel cost...

Osbert Tang, CFA

Update on Some of the HK Commodity Stocks We Follow

Revisiting some of the Hong Kong commodity stocks we have highlighted previously. ​Tanker rates remain high, copper demand grows amid speculation,...

Rikki Malik

Tanker market imbalance to continue, boosting earnings; global tensions and higher prices benefit the company; stock option scheme incentivizes...

CSET's rally is excessive as the market has built up unrealistic expectations on 2H23 earnings. A weakened demand outlook and higher fuel cost...

Revisiting some of the Hong Kong commodity stocks we have highlighted previously. Tanker rates remain high, copper demand grows amid speculation,...