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>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

HK/China Equity Long-Short

Osbert Tang, CFA

<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

<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

<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>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

China

Cosco Shipping Specialised Carriers Co. provides marine and coastal freight transportation services.  The Company also operates in wholesale and retail trading, acts as a shipping agency, as well as provides loading and unloading, storage, and labor services.

Cosco Shipping Specialised Carriers  (600428 CH)

Cosco Shipping Development Co., Ltd is a container shipping company based in China.  The Company owns, charters, and operates container vessels for the provision of international and domestic container marine transportation services.

Hainan Strait Shipping Co., Ltd. offers domestic coastal passenger and cargo marine transportation services.

Bohai Ferry Company Limited is a passenger liner transportation enterprise. The Company mainly operates passenger vessel transport for the Yantai-Dalian and Penglai-Dalian sea routes.

Ningbo Marine Co., Ltd. provides freight transportation on the inland waters, as well as between the ports of Ningbo and Southeast Asian countries and Japan. The Company also invests in the transportation facility construction business and processes steel product.

Tianjin Tianhai Investment Co., Ltd. provides marine transportation services in China and internationally. The company operates container transportation and related business. Its principal routes include international container regular freight transportation lines to South Korea and Southeast Asia with Tianjin, Qingdao, Quanzhou, and Shantou as the base ports, as well as domestic freight transportation lines to Yingkou, Qingdao, Rizhao, and Longkou with Quanzhou and Shantou as the base ports. The company was formerly known as Tianjin Marine Shipping Co., Ltd. and changed its name to Tianjin Tianhai Investment Co., Ltd. in July 2015. Tianjin Tianhai Investment Co., Ltd. is based in Tianjin, China.

Lanhai Medical Investment Co., Ltd. provides domestic and international water transportation for bulk cargos.  The Company also trades petrochemical products and provides storage service.

Lanhai Medical Investment Co.,  (600896 CH)

China Southern Airlines Company Limited provides commercial airline services throughout China, Southeast Asia and other parts of the world.  The Company also provides other airline related services including aircraft maintenance and air catering.

China Eastern Airlines Corporation Limited, together with its subsidiaries, operates in the civil aviation industry. It offers passenger, cargo, mail delivery, ground, cargo handling, and other extended transportation services.

Shandong Hi-speed Co Ltd. operates and maintains toll roads, bridges, tunnels, and other infrastructure facilities.  The Company operates the Jiqing Highway, the Taiqu Road, the Jinan-Huanghe Bridge, the Pingyin Bridge, and the Binzhou Bridge. Shandong Hi-speed also retails petroleum products.

Matson Inc., is involved in transportation and logistics.  The Company offers provides  multimodal transportation services to the North American market, including domestic and international rail intermodal service, long haul and regional highway brokerage, supply chain services and LTL transportation services, as well as third-party logistics services.

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.

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.

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.

Golden Ocean Group Limited operates as an international dry bulk shipping company based in Bermuda. The Company mainly operates in the Capesize and Panamax market segments. Golden Ocean Group's fleet is managed by Golden Ocean Group Management (Bermuda) Limited.

Star Bulk Carriers Corp. is a holding company, which engages in the marine transportation of dry bulk vessels. It ships iron ore, coal, grain, bauxite, fertilizers, and steel products. The company was founded by Petros Alexandros Pappas on December 13, 2006 and is headquartered in Athens, Greece.

Wallenius Wilhelmsen ASA provides shipping and logistics services. The Company offers ocean transportation for cars, trucks, buses, rolling equipment, and breakbulk cargo, as well as supply chain services. Wallenius Wilhelmsen serves agricultural, automotive, and aviation industries 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.

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)

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

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): 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 - Higher for Longer

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

Rikki Malik

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

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): 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 - Higher for Longer

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

Rikki Malik

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...

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