HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Orient Overseas International / Equity Bottom-Up

<ul>
<li>The Shanghai Containerised Freight Index has popped by 25% in the first two weeks of 2024 due to the Red Sea crisis. <a href="https://www.smartkarma.com/entities/orient-overseas-international" target="_blank" data-smartkarma-citation="entities:801:1" rel="noopener">Orient Overseas International (316 HK)</a> is a beneficiary.</li>
<li>There are already signs of bottoming out of realised freight rate and load factor in 4Q23. The spike in freight rate means that consensus forecasts are too bearish. </li>
<li>OOIL's net cash of US$5.6bn equals 58% of its market capitalisation, making its 0.7x P/B and 8% yield attractive. There is also a possibility for a higher dividend payout. </li>
</ul>


The Shanghai Containerised Freight Index has popped by 25% in the first two weeks of 2024 due to the Red Sea crisis. Orient Overseas International (316 HK) is a beneficiary.
There are already signs of bottoming out of realised freight rate and load factor in 4Q23. The spike in freight rate means that consensus forecasts are too bearish. 
OOIL's net cash of US$5.6bn equals 58% of its market capitalisation, making its 0.7x P/B and 8% yield attractive. There is also a possibility for a higher dividend payout. 


Orient Overseas Intl (316 HK): Is It Time for a Reversal?

<ul>
<li>
<a href="https://www.smartkarma.com/entities/orient-overseas-international" target="_blank" data-smartkarma-citation="entities:801:1" rel="noopener">Orient Overseas International (316 HK)</a> saw 27.2% QoQ freight rate uptick in 1Q24. This is a positive start and we should not be too concerned about the 12% YoY decline.</li>
<li>Its overall load factor also expanded 0.9pp YoY in the quarter, and this is the first YoY improvement since 2Q22. A better utilisation level is good for unit costs.</li>
<li>At end-FY23, net cash equals 62.4% of the share price, dragging ROE to 7.5% for the next three years. But with such solid financials, its 0.7x P/B is not expensive.</li>
</ul>



Orient Overseas International (316 HK) saw 27.2% QoQ freight rate uptick in 1Q24. This is a positive start and we should not be too concerned about the 12% YoY decline.
Its overall load factor also expanded 0.9pp YoY in the quarter, and this is the first YoY improvement since 2Q22. A better utilisation level is good for unit costs.
At end-FY23, net cash equals 62.4% of the share price, dragging ROE to 7.5% for the next three years. But with such solid financials, its 0.7x P/B is not expensive.


Orient Overseas Intl (316 HK): Spotting Initial Signs of Recovery

<ul>
<li>We believe the 11.4% decline in share price of <a href="https://www.smartkarma.com/entities/orient-overseas-international" target="_blank" data-smartkarma-citation="entities:801:1" rel="noopener">Orient Overseas International (316 HK)</a> YTD is not sufficient to reflect the plunge in freight rate and weakened load performance.</li>
<li>Its 4Q22 average revenue/TEU of US$1,822.3 has returned to 2Q21 level; but with latest spot rate already plunged to early-2020 times, there is further downside for OOIL's realised rate.</li>
<li>Export outlook is uninspiring as well, indicating pressure on demand. With similar ROE, OOIL only trades at 0.3x P/B in FY20, that makes its current P/B of 0.9x expensive.</li>
</ul>


We believe the 11.4% decline in share price of Orient Overseas International (316 HK) YTD is not sufficient to reflect the plunge in freight rate and weakened load performance.
Its 4Q22 average revenue/TEU of US$1,822.3 has returned to 2Q21 level; but with latest spot rate already plunged to early-2020 times, there is further downside for OOIL's realised rate.
Export outlook is uninspiring as well, indicating pressure on demand. With similar ROE, OOIL only trades at 0.3x P/B in FY20, that makes its current P/B of 0.9x expensive.


Orient Overseas Intl (316 HK): Still Not Too Late to Be Bearish

Thematic (Sector/Industry)

<ul>
<li>Our positive calls on <a href="https://www.smartkarma.com/entities/fu-shou-yuan-international" target="_blank" data-smartkarma-citation="entities:18168:1" rel="noopener">Fu Shou Yuan (1448 HK)</a> and <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (753 HK)</a> and negative call on <a href="https://www.smartkarma.com/entities/china-conch-environment-protection-holdings-ltd" target="_blank" data-smartkarma-citation="entities:4827:1" rel="noopener">Conch Environment (587 HK)</a> have generated the best wins in 2022.</li>
<li>These calls achieved returns of 56.8%, 34.2% and 43.5%, respectively, which we think are remarkable given the losses of 16.3% for HSI and 19.3% for HSCEI YTD.</li>
<li>In 2023, we expect Fu Shou Yuan <a href="https://www.smartkarma.com/entities/fu-shou-yuan-international" target="_blank" data-smartkarma-citation="entities:18168:1" rel="noopener"></a>continue to do well and Conch Environment to remain under pressure. It may be prudent to take some profit on Air China. <a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener"></a> </li>
</ul>


Our positive calls on Fu Shou Yuan (1448 HK) and Air China Ltd (753 HK) and negative call on Conch Environment (587 HK) have generated the best wins in 2022.
These calls achieved returns of 56.8%, 34.2% and 43.5%, respectively, which we think are remarkable given the losses of 16.3% for HSI and 19.3% for HSCEI YTD.
In 2023, we expect Fu Shou Yuan continue to do well and Conch Environment to remain under pressure. It may be prudent to take some profit on Air China.  


Our Three Best Calls in 2022: Review and Outlook for 2023

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Capital Markets

<ul>
<li>In terms of fleet characteristics, market exposure, and recent financial performance, we believe <a href="https://www.smartkarma.com/entities/t-s-lines" target="_blank" data-smartkarma-citation="entities:39795:1" rel="noopener">T.S. Lines (TSL HK)</a> and Taiwan's <a href="https://www.smartkarma.com/entities/wan-hai-lines-ltd" target="_blank" data-smartkarma-citation="entities:14262:1" rel="noopener">Wan Hai Lines (2615 TT)</a> are directly comparable</li>
<li>WHL has more exposure to the Transpacific, but still boasts a much larger Intra-Asia operation owing to its scale advantage (fleet and revenue about four times the size of TSL)</li>
<li>Given the similarities we outline in this insight, we believe TSL's shares should trade at EV/Fleet and EV/Revenue multiples in line with WHL's; no premium is justified, in our view</li>
</ul>


In terms of fleet characteristics, market exposure, and recent financial performance, we believe T.S. Lines (TSL HK) and Taiwan's Wan Hai Lines (2615 TT) are directly comparable
WHL has more exposure to the Transpacific, but still boasts a much larger Intra-Asia operation owing to its scale advantage (fleet and revenue about four times the size of TSL)
Given the similarities we outline in this insight, we believe TSL's shares should trade at EV/Fleet and EV/Revenue multiples in line with WHL's; no premium is justified, in our view


TS Lines Pre-IPO | Like Wan Hai Lines, but Smaller | Intra-Asia Update | Approaches to Valuation

Hong Kong

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.

Pacific Basin Shipping Limited, through its subsidiaries, provides marine transportation services and logistical support to its customers through the commercial operation of a large, modern, and uniformly-sized fleet of shallow-draft Handysize dry bulk carriers.

Cathay Pacific Airways Limited operates scheduled airline services. The Company also provides related services, including airline catering, aircraft handling, and engineering.

Chu Kong Shipping Enterprises (Group) Company Limited provides shipping and cargo handling services between Hong Kong and China.  The Company's services include freight forwarding, wharf cargo handling, cargo consolidation, warehouse storage, and trucking.  Chu Kong Shipping also provides container hauling services.

Chu Kong Shipping Enterprises(Grp) (560 HK)

China Merchants Holdings International Company Limited, through its subsidiaries and associated companies, operates container and cargo terminals, port transportation, and airport cargo handling.  The Company also manufactures containers, paint, and trailers as well as operates toll road, shipping, property, and dealing securities businesses.

COSCO Shipping Ports Limited, through its subsidiaries, provides shipping container leasing services worldwide.  The Company also operates container terminals and provides container handling, storage, transportation and management services, as well as depot handling and stevedoring services.

Shenzhen International Holdings Limited operates as a holding company. The Company, through its subsidiaries, provides investment, construction, and operation of logistic infrastructure facilities, as well as offers value-added logistic services. Shenzhen International serves customers worldwide.

Kerry Logistics Network Limited provides logistics services in Asia and internationally. The Company offers integrated logistics services, as well as leases warehousing space in Hong Kong and provides international freight forwarding services.

Yuexiu Transport Infrastructure Ltd., through its subsidiaries, invests in, develops, operates, and manages toll highways, expressways, and bridges in China.

Yuexiu Transport Infrastructure (1052 HK)

Dafeng Port Heshun Technology Co Ltd provides integrated logistics for freight services. The Company focuses on land and ocean freight services, air freight forwarding services, and operation equipment rental services. Gamme Logistics offers its services primarily between Hong Kong and the Pearl River Delta region.

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.

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.

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.

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.

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.

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.

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.

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.

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Orient Overseas International (316 HK)

Orient Overseas Intl (316 HK): Is It Time for a Reversal?

SCFI surged 25% due to the Red Sea crisis, benefiting OOIL, suggesting consensus forecasts are too bearish. It is attractive at 0.7x P/B and 8%...

Osbert Tang, CFA

Orient Overseas Intl (316 HK): Spotting Initial Signs of Recovery

OOIL shows a QoQ freight rate uptick at 27.2% in 1Q24, with the load factor improving 0.9pp YoY. Given that 62.4% of the stock price is net cash,...

Osbert Tang, CFA

Orient Overseas Intl (316 HK): Still Not Too Late to Be Bearish

OOIL's 4Q22 average revenue/TEU has returned to 2Q21 level. As latest spot rate plunged to early-2020 level, there is further downside to realised...

Osbert Tang, CFA

Our Three Best Calls in 2022: Review and Outlook for 2023

In 2023, we expect share prices of Fu Shou Yuan to continue to do well and Conch Environment to remain under pressure. For Air China, given rich...

Osbert Tang, CFA

TS Lines Pre-IPO | Like Wan Hai Lines, but Smaller | Intra-Asia Update | Approaches to Valuation

Intra-Asia container carrier TS Lines filed to list its shares in Hong Kong (again) at the end of May, and its filing included full-year 2023...

Tracking Traffic

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52-week Range

Market Cap (USDm)

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Dividend (Yield)

Orient Overseas Intl (316 HK): Is It Time for a Reversal?

​SCFI surged 25% due to the Red Sea crisis, benefiting OOIL, suggesting consensus forecasts are too bearish. It is attractive at 0.7x P/B and 8%...

Osbert Tang, CFA

Orient Overseas Intl (316 HK): Spotting Initial Signs of Recovery

​OOIL shows a QoQ freight rate uptick at 27.2% in 1Q24, with the load factor improving 0.9pp YoY. Given that 62.4% of the stock price is net cash,...

Osbert Tang, CFA

Orient Overseas Intl (316 HK): Still Not Too Late to Be Bearish

OOIL's 4Q22 average revenue/TEU has returned to 2Q21 level. As latest spot rate plunged to early-2020 level, there is further downside to realised...

Osbert Tang, CFA

Our Three Best Calls in 2022: Review and Outlook for 2023

In 2023, we expect share prices of Fu Shou Yuan to continue to do well and Conch Environment to remain under pressure. For Air China, given rich...

Osbert Tang, CFA

TS Lines Pre-IPO | Like Wan Hai Lines, but Smaller | Intra-Asia Update | Approaches to Valuation

Intra-Asia container carrier TS Lines filed to list its shares in Hong Kong (again) at the end of May, and its filing included full-year 2023...

Tracking Traffic

SCFI surged 25% due to the Red Sea crisis, benefiting OOIL, suggesting consensus forecasts are too bearish. It is attractive at 0.7x P/B and 8%...

OOIL shows a QoQ freight rate uptick at 27.2% in 1Q24, with the load factor improving 0.9pp YoY. Given that 62.4% of the stock price is net cash,...