Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Equity Bottom-Up

<p>At the lunch break on Friday, April 27th, the three major Japanese shipping lines all reported March 2018 fiscal year financial results, including segment profits for their respective container operations (which merged on April 1st). The three Japanese carriers all reported <em>losses</em> for their container operations in the seasonally slow March quarter, and these losses were in aggregate <em>greater</em> than the quarterly losses they reported a year earlier. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/050/925/original/JP_margins.png?1525006966" class="editor-image img-responsive" data-smartkarma-image-id="50925"></figure><div class="content-caption">Sources: companies</div><p>March quarter aggregate segment…</p>

At the lunch break on Friday, April 27th, the three major Japanese shipping lines all reported March 2018 fiscal year financial results, including segment profits for their respective container operations (which merged on April 1st). The three Japanese carriers all reported losses for their container operations in the seasonally slow March quarter, and these losses were in aggregate greater than the quarterly losses they reported a year earlier. Sources: companiesMarch quarter aggregate segment…

Momentum No More: Japan3 Shipping Lines Report Worsening Container Segment Losses in FYQ4

Equity Analyst, LightStream Research

Nuzran Sahib

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<p>The Baltic Dry Index (BDI) which factors in rates for Capesize, Panamax and Supramax vessels is showing a slightly different seasonal trend compared to the last few years. China’s demand for iron ore is being moderated by slow exports of steel following the Trump tariffs and this could affect the freight rates for Capesizes and Panamaxes resulting in a drop in dry bulk revenues for the shipping companies.</p><ul><li>Trump tax, winter slows demand for iron-ore shipping during 4Q post-LNY where usually rates recover.</li><li>Revenue from dry bulk segments for NYK, MOL and K-Line should be lower than expected for the 4Q FY03/18 on the back of falling BDI beyond LNY.</li><li>Surging demand for iron ore from China has almost peaked and industry specialists forecast stable demand during the next few years.</li><li>But, the second-hand market value for dry bulk ships indicates, positive outlook on the industry.</li></ul>

The Baltic Dry Index (BDI) which factors in rates for Capesize, Panamax and Supramax vessels is showing a slightly different seasonal trend compared to the last few years. China’s demand for iron ore is being moderated by slow exports of steel following the Trump tariffs and this could affect the freight rates for Capesizes and Panamaxes resulting in a drop in dry bulk revenues for the shipping companies.Trump tax, winter slows demand for iron-ore shipping during 4Q post-LNY where usually rates recover.Revenue from dry bulk segments for NYK, MOL and K-Line should be lower than expected for the 4Q FY03/18 on the back of falling BDI beyond LNY.Surging demand for iron ore from China has almost peaked and industry specialists forecast stable demand during the next few years.But, the second-hand market value for dry bulk ships indicates, positive outlook on the industry.

Unseasonal Downtrend to Hurt Bulk Shipping in 4QFY18

Lead Analyst, Credit Research, Drewry Maritime Financial Research

Konstantinos Oikonomopoulos

Lead Analyst, Credit Research

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.

Credit

<p><strong>Strong profitability thanks to an improved market, NOL's contribution and Ocean Alliance network efficiencies </strong></p><p> </p><p><strong>Record revenues in FY17:</strong> Top line surged by 32% y/y at the end of the year at USD 21bn of which USD 5.9bn were contributed by NOL. On a stand-alone basis and in order to compare accurately performance (NOL consolidation since June 2016), CMA CGM’s sales grew by circa 14% on FY17 revenue of USD 15.2bn vs USD 13.4bn a year before. The consolidated group benefitted from a 21% surge y/y…</p>

Strong profitability thanks to an improved market, NOL's contribution and Ocean Alliance network efficiencies  Record revenues in FY17: Top line surged by 32% y/y at the end of the year at USD 21bn of which USD 5.9bn were contributed by NOL. On a stand-alone basis and in order to compare accurately performance (NOL consolidation since June 2016), CMA CGM’s sales grew by circa 14% on FY17 revenue of USD 15.2bn vs USD 13.4bn a year before. The consolidated group benefitted from a 21% surge y/y…

Container Shipping - Can CMA CGMs Bonds Withstand the Selling Pressure from the Broader Bond Market?

<ul><li>ONE soon to become the 5<sup>th</sup> largest containership company in the world, passing Hapag Lloyd</li><li>Containership industry consolidation should lead to more control over the supply and the rates</li><li>Synergies from integrated operations of ONE drive earnings of the three companies</li><li>Competition should intensify during the negotiation phase between ONE and its existing clients where competitors try to cash-in</li><li>Freight Rates should be more stable on the back of increasing international trades</li></ul><p>In battling the tight market conditions with low freight rates on the back of the introduction of ultra large container vessels which lead to a significant increase in supply, the container shipping industry has been going through a consolidation phase. We are about to witness the last possible significant merger when NYK, MOL and K-Line start operating their container shipping segment under the JV named Ocean Network Express (ONE). Profits and losses will be accounted for by the companies under the share of profits from the JV where NYK will account for 38% while MOL and K-Line will account for 31% each.</p>

ONE soon to become the 5th largest containership company in the world, passing Hapag LloydContainership industry consolidation should lead to more control over the supply and the ratesSynergies from integrated operations of ONE drive earnings of the three companiesCompetition should intensify during the negotiation phase between ONE and its existing clients where competitors try to cash-inFreight Rates should be more stable on the back of increasing international tradesIn battling the tight market conditions with low freight rates on the back of the introduction of ultra large container vessels which lead to a significant increase in supply, the container shipping industry has been going through a consolidation phase. We are about to witness the last possible significant merger when NYK, MOL and K-Line start operating their container shipping segment under the JV named Ocean Network Express (ONE). Profits and losses will be accounted for by the companies under the share of profits from the JV where NYK will account for 38% while MOL and K-Line will account for 31% each.

Ocean Network Express Aims to Generate Massive Operational Synergies and Change Fortunes for 3J

<h2>EV/EBITDA Trades at a Premium, Recommend Sell</h2><p>K-Line’s share price had fallen by 17% during the last two months to JPY2,504 as of 13<sup>th</sup> March 2018. K-Line’s share had been trading at a 7.3x FY1 historical median EV/EBITDA while currently it's being traded at 9.3x. FY2 EV/EBITDA is about 8.5x at the moment compared to the historical median of 6.8x. Due to container rates at low levels and our expectation for peaking iron ore and coal imports to China to negatively affect the BDI and thus bulk revenue margin, we are rather cautious on K-Line. Positive changes in industry dynamics such as the new “ONE” merger taking place in the containership industry may not be adequate to restrain the downside mentioned above coupled with the increasing bunker prices and other incremental costs associated with regulations on SOx. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/047/089/original/EVtoEBITDA.png?1521010188" class="editor-image img-responsive" data-smartkarma-image-id="47089"></figure><div class="content-caption">Valuation Based on EV/EBITDA</div><div style="text-align: left;" class="content-caption"><em>Source: Bloomberg/LightStream Research</em></div>

EV/EBITDA Trades at a Premium, Recommend SellK-Line’s share price had fallen by 17% during the last two months to JPY2,504 as of 13th March 2018. K-Line’s share had been trading at a 7.3x FY1 historical median EV/EBITDA while currently it's being traded at 9.3x. FY2 EV/EBITDA is about 8.5x at the moment compared to the historical median of 6.8x. Due to container rates at low levels and our expectation for peaking iron ore and coal imports to China to negatively affect the BDI and thus bulk revenue margin, we are rather cautious on K-Line. Positive changes in industry dynamics such as the new “ONE” merger taking place in the containership industry may not be adequate to restrain the downside mentioned above coupled with the increasing bunker prices and other incremental costs associated with regulations on SOx. Valuation Based on EV/EBITDASource: Bloomberg/LightStream Research

K-Line to Shrink Amidst Volatile Market Rates Prevailing in the Shipping Sector

Japan

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.

Nippon Yusen Kabushiki Kaisha mainly provides marine transportation services and transportation management solution from international hub ports to both domestic and international ports. The Company operates container transportation, tramp and specialized carriers, and logistics and cruise lines. Nippon Yusen offers scheduled and unscheduled transportation services around the world.

NS United Kaiun Kaisha, Ltd. operates specialized carriers and tramps to ship iron ore, steel, coal, crude oil, and gas. The Company is affiliated with Nippon Yusen. The Company also has close ties with Nippon Steel.

IINO KAIUN KAISHA, LTD. owns and operates specialized tankers such as oil, chemical, and LPG carriers.  The Company transports crude oil, petroleum gasoline, and various dry consumer and agricultural goods.  Iino Kaiun Kaisha also leases and sells real estate.

Japan Transcity Corporation provides warehousing and transportation services. The Company handles marine cargo mainly around port of Yokkaichi City, and transports a variety of products such as automobiles, coal, and chemicals. Japan Transcity specializes in international intermodal transportation.

NAIGAI TRANS LINE LTD is a marine transportation company. The Company mainly offers international and domestic container marine transportation services. NAIGAI TRANS LINE LTD also operates warehousing and cargo handling services.

Nippon Concept Corporation is mainly engaged in providing ISO tank container transportation service.  The Company also offers container cleaning services, logistic solutions, and maintenance services.

Meiji Shipping Co., Ltd. provides marine transportation services. The Company also provides technical management, marine staffing, supplies Italian kitchen fixtures, and supplies nautical equipment. Meiji, also in involved in real estate and operates hotels and restaurants.

Japan Airlines Co. Ltd. provides air transportation services. The Company offers a variety of scheduled  flights and unscheduled flights throughout the world as well as offers air courier services. Japan Airlines also provides tickets, resort hotels, and travel agencies services.

ANA Holdings Inc provides a variety of air transportation-related services. The Company offers scheduled & unscheduled air passenger services and air courier services. ANA sells aircraft parts and provides travel arrangement & reservation services as well.

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.

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.

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.

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.

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)

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.

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.

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.

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Mitsui O.S.K. Lines (9104 JP)

Momentum No More: Japan3 Shipping Lines Report Worsening Container Segment Losses in FYQ4

At the lunch break on Friday, April 27th, the three major Japanese shipping lines all reported March 2018 fiscal year financial results, including...

Daniel Hellberg

Unseasonal Downtrend to Hurt Bulk Shipping in 4QFY18

The Baltic Dry Index (BDI) which factors in rates for Capesize, Panamax and Supramax vessels is showing a slightly different seasonal trend...

Nuzran Sahib

Container Shipping - Can CMA CGMs Bonds Withstand the Selling Pressure from the Broader Bond Market?

Strong profitability thanks to an improved market, NOL's contribution and Ocean Alliance network efficiencies Record revenues in FY17: Top line...

Drewry Maritime Financial Research

Ocean Network Express Aims to Generate Massive Operational Synergies and Change Fortunes for 3J

ONE soon to become the 5th largest containership company in the world, passing Hapag Lloyd Containership industry consolidation should lead to...

Nuzran Sahib

K-Line to Shrink Amidst Volatile Market Rates Prevailing in the Shipping Sector

EV/EBITDA Trades at a Premium, Recommend SellK-Line’s share price had fallen by 17% during the last two months to JPY2,504 as of 13th March 2018....

Nuzran Sahib

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