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

Equity Bottom-Up

<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

<p>NYK, like any other shipping company in the industry, had a rough period post-Financial Crisis and faced tremendous pressure from falling rates in both the liner and bulk shipping segments. Supply outpaced demand growth due to a large number of ships added in the past 3-4 years resulting in a slump in container freight rates. To overcome this, the industry is going through a consolidating phase where big players in the container shipping industry formed mergers and acquisitions to improve efficiencies through cost synergies and secure greater control over the number of vessels added to the industry. Meanwhile, bulk shipping has rebounded from the bottom due to higher demand by China for Seaborne transportation and the US economy’s continued growth.</p>

NYK, like any other shipping company in the industry, had a rough period post-Financial Crisis and faced tremendous pressure from falling rates in both the liner and bulk shipping segments. Supply outpaced demand growth due to a large number of ships added in the past 3-4 years resulting in a slump in container freight rates. To overcome this, the industry is going through a consolidating phase where big players in the container shipping industry formed mergers and acquisitions to improve efficiencies through cost synergies and secure greater control over the number of vessels added to the industry. Meanwhile, bulk shipping has rebounded from the bottom due to higher demand by China for Seaborne transportation and the US economy’s continued growth.

NYK Shipping Business to Improve as Demand-Supply Gap Converges

Japan

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)

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

NYK Shipping Business to Improve as Demand-Supply Gap Converges

NYK, like any other shipping company in the industry, had a rough period post-Financial Crisis and faced tremendous pressure from falling rates in...

Nuzran Sahib

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