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 Bottom-Up

AP Moeller - Maersk A/S / Equity Bottom-Up

<ul>
<li>Our monthly index suggests that container rates have bottomed, with easier comps in H2</li>
<li>Lower fuel has been a tailwind for carriers for several months, but that could change</li>
<li>We still think the worst has passed for carriers, a few of which have performed well in '23</li>
</ul>


Our monthly index suggests that container rates have bottomed, with easier comps in H2
Lower fuel has been a tailwind for carriers for several months, but that could change
We still think the worst has passed for carriers, a few of which have performed well in '23


Monthly Container Shipping Tracker | Rates Bottoming | Fuel Tailwind Easing? | (August 2023)

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>While management of <a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a> thinks that the worst is over, we are less positive given the lacklustre demand and the disappointing Jul-Aug market freight rates.</li>
<li>Its gross margin is still significantly ahead of the pre-COVID levels, and financially, its net cash balance has been coming down. The dividend payout ratio has also lowered slightly.</li>
<li>The FY23 consensus earnings forecast is too optimistic given 1H23 net profit is only 33.5% of the full-year estimate. The downside risk will cap near-term share price performance. </li>
</ul>


While management of SITC International (1308 HK) thinks that the worst is over, we are less positive given the lacklustre demand and the disappointing Jul-Aug market freight rates.
Its gross margin is still significantly ahead of the pre-COVID levels, and financially, its net cash balance has been coming down. The dividend payout ratio has also lowered slightly.
The FY23 consensus earnings forecast is too optimistic given 1H23 net profit is only 33.5% of the full-year estimate. The downside risk will cap near-term share price performance. 


SITC International (1308 HK): Uneasy Times

<ul>
<li>
Yes, carrier margins and returns in Q2/H1 plunged dramatically compared to 2022</li>
<li>
Yes, carrier margins and returns in Q2/H1 were quite good by historical standards</li>
<li>In this insight we provide context to help readers evaluate carrier performance in 2023</li>
</ul>



Yes, carrier margins and returns in Q2/H1 plunged dramatically compared to 2022

Yes, carrier margins and returns in Q2/H1 were quite good by historical standards
In this insight we provide context to help readers evaluate carrier performance in 2023


Evergreen Marine: 'H1 Earnings Plunged Dramatically Y/Y' | Also, 'H1 Earnings Were Pretty Damn Good'

<ul>
<li>On Friday container giant <a href="https://www.smartkarma.com/entities/ap-moeller-maersk-a-s" target="_blank" data-smartkarma-citation="entities:22428:1" rel="noopener">AP Moeller - Maersk A/S (MAERSKB DC)</a> raised FY23 guidance, lifting the bottom of its EBITDA range &amp; increasing target FCF from US$2bn+ to US$3bn+</li>
<li>Despite beating Q2 expectations and raising FY guidance, management warned that the "normalization" of container shipping conditions is taking longer than anticipated</li>
<li>Maersk's shares traded down on the news, but the company's statements confirm our thesis: market conditions in 2023 are not nearly as bad as expected (Maersk's TTM ROIC 34%!)</li>
</ul>


On Friday container giant AP Moeller - Maersk A/S (MAERSKB DC) raised FY23 guidance, lifting the bottom of its EBITDA range &amp; increasing target FCF from US$2bn+ to US$3bn+
Despite beating Q2 expectations and raising FY guidance, management warned that the "normalization" of container shipping conditions is taking longer than anticipated
Maersk's shares traded down on the news, but the company's statements confirm our thesis: market conditions in 2023 are not nearly as bad as expected (Maersk's TTM ROIC 34%!)


Maersk Q2: Raised FY23 Guidance | Beat on Earnings, Too | Takeaway: Conditions Not Disastrous

<ul>
<li>Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. </li>
<li>Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.</li>
<li>Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.</li>
</ul>


Maersk's Q1 earnings were solid, despite plummeting container rates and volumes. Annualizing Q1 Net Income would give RoE of about 17%, which is a healthy level, in our view. 
Q1 EBITDA of US$4 bn is equivalent to 36% to 50% of full-year guidance, which remains unchanged. Maersk indicated Q1 will likely be its most profitable quarter in 2023.
Maersk's result reinforces our view that container rates are bottoming. A related takeaway is that a slowing goods inflation rate could lose a tailwind it's enjoyed since last October.


Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

Hong Kong

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)

Monthly Container Shipping Tracker | Rates Bottoming | Fuel Tailwind Easing? | (August 2023)

Our analysis shows pricing momentum for carriers remains depressed, but stable. In other words, conditions are not deteriorating. But fuel prices...

Tracking Traffic

SITC International (1308 HK): Uneasy Times

While SITC's management thinks the worst is over, we are less positive given lacklustre demand and disappointing Jul-Aug market freight rates. We...

Osbert Tang, CFA

Evergreen Marine: 'H1 Earnings Plunged Dramatically Y/Y' | Also, 'H1 Earnings Were Pretty Damn Good'

Evergreen, Maersk, and ZIM have all reported H1 results. Yes, margins and returns were a fraction of what they were in 2021-22, but H123 earnings...

Tracking Traffic

Maersk Q2: Raised FY23 Guidance | Beat on Earnings, Too | Takeaway: Conditions Not Disastrous

Maersk Q2 results beat expectations handily. More importantly, the company raised FY23 guidance for EBITDA and FCF, though management also...

Tracking Traffic

Maersk Q1: Earnings Fine | Guidance Intact | Takeaways for Container Shipping (And Inflation)

Maersk's Q1 result showed a steep Y/Y decline in earnings due to lower rates. But RoE is fine, and the company maintained guidance, which supports...

Tracking Traffic

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