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

Rikki Malik

Equity Bottom-Up

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

Cosco Shipping Energy Transportation Co. Ltd. (H)

<ul>
<li>Speculative liquidation of crude oil positions opens up an opportunity</li>
<li>A seasonally strong period for crude tanker rates coming up</li>
<li>Company option scheme for senior management approved. Strike above current price</li>
</ul>


Speculative liquidation of crude oil positions opens up an opportunity
A seasonally strong period for crude tanker rates coming up
Company option scheme for senior management approved. Strike above current price


Cosco Shipping Energy Transportation - Capitulation in Oil and Related Equities Almost Complete?

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>The P/B multiple 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 (H) (1138 HK)</a> has pulled back to 0.8x now, from 1.3x three months ago. The risk-reward payoff has improved.</li>
<li>Historically, there is no long-term correlation between oil prices and share prices. Hence, we should not be overfocused on the recent pullback in oil prices.</li>
<li>Although the market consensus is high, FY24 should still see growth. The 3Q24 VLCC spot rate is 27.4% higher YoY, potentially boosting quarterly results and sustaining a high FY24 yield. </li>
</ul>


The P/B multiple of Cosco Shipping Energy Transportation (H) (1138 HK) has pulled back to 0.8x now, from 1.3x three months ago. The risk-reward payoff has improved.
Historically, there is no long-term correlation between oil prices and share prices. Hence, we should not be overfocused on the recent pullback in oil prices.
Although the market consensus is high, FY24 should still see growth. The 3Q24 VLCC spot rate is 27.4% higher YoY, potentially boosting quarterly results and sustaining a high FY24 yield. 


COSCO Shipping Energy (1138 HK): Better Safety Margin Now

<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>All the business fundamentals continue to trend in the right direction</li>
<li>The sector has sold off with the general commodity sell-off</li>
<li>Investors not giving the benefit of the doubt to future oil demand</li>
</ul>


All the business fundamentals continue to trend in the right direction
The sector has sold off with the general commodity sell-off
Investors not giving the benefit of the doubt to future oil demand


Recent Sell-Off in Tanker Stocks Provides an Opportunity in Cosco Shipping Energy - 1138.HK

<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 Transp. Co. Ltd. (H) (1138 HK)</a>'s 1.25x 12-month forward P/B is more than 2SD above historical average. Though earnings have improved, this still appears rich.</li>
<li>The market expects this upcycle will sustain for at least 5 years, but as a cyclical stock, CSET has never had such a long cycle in the last 10 years. </li>
<li>While VLCC rate has gained 36% YTD, the average for FY24 is just in line with 2H22 and 1H23. However, earnings projections are 57% higher than that time.</li>
</ul>



Cosco Shipping Energy Transp. Co. Ltd. (H) (1138 HK)'s 1.25x 12-month forward P/B is more than 2SD above historical average. Though earnings have improved, this still appears rich.
The market expects this upcycle will sustain for at least 5 years, but as a cyclical stock, CSET has never had such a long cycle in the last 10 years. 
While VLCC rate has gained 36% YTD, the average for FY24 is just in line with 2H22 and 1H23. However, earnings projections are 57% higher than that time.


COSCO Shipping Energy (1138 HK): Don't Get Carried Away

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): Better Safety Margin Now

CSET's P/B has dropped to 0.8x, improving the risk-reward payoff. Despite the oil price pullback, long-term correlation with share prices is weak....

Osbert Tang, CFA

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

Recent Sell-Off in Tanker Stocks Provides an Opportunity in Cosco Shipping Energy - 1138.HK

Despite positive business fundamentals, the sector is being dragged down by a general commodity sell-off as investors remain skeptical about...

Rikki Malik

COSCO Shipping Energy (1138 HK): Don't Get Carried Away

The market is bullish on CSET but its high P/B ratio suggests caution. It has no record of sustaining an extended upcycle and earnings projections...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Cosco Shipping Energy Transportation - Capitulation in Oil and Related Equities Almost Complete?

Although this piece timed the bottom to the day, there is more upside. It is still a laggard as it is "only" up ~40% from a depressed price....

Rikki Malik

COSCO Shipping Energy (1138 HK): Better Safety Margin Now

​CSET's P/B has dropped to 0.8x, improving the risk-reward payoff. Despite the oil price pullback, long-term correlation with share prices is weak....

Osbert Tang, CFA

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

Recent Sell-Off in Tanker Stocks Provides an Opportunity in Cosco Shipping Energy - 1138.HK

​Despite positive business fundamentals, the sector is being dragged down by a general commodity sell-off as investors remain skeptical about...

Rikki Malik

COSCO Shipping Energy (1138 HK): Don't Get Carried Away

​The market is bullish on CSET but its high P/B ratio suggests caution. It has no record of sustaining an extended upcycle and earnings projections...

Osbert Tang, CFA

CSET's P/B has dropped to 0.8x, improving the risk-reward payoff. Despite the oil price pullback, long-term correlation with share prices is weak....

Despite positive business fundamentals, the sector is being dragged down by a general commodity sell-off as investors remain skeptical about...

The market is bullish on CSET but its high P/B ratio suggests caution. It has no record of sustaining an extended upcycle and earnings projections...