HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<ul>
<li>
<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> achieved a record net profit which surged 2.3x in FY21, but our concern is that much of news has been well in the share price.</li>
<li>While management is optimistic on its outlook, we think challenges are higher costs (port, bunker and charterhire) and little room for further significant freight rate increase. </li>
<li>Its 6.7x P/B for FY22F has well reflected its quality but with ROE likely to dip back in FY22 and FY23, we think upside does not look impressive.</li>
</ul>



SITC International (1308 HK) achieved a record net profit which surged 2.3x in FY21, but our concern is that much of news has been well in the share price.
While management is optimistic on its outlook, we think challenges are higher costs (port, bunker and charterhire) and little room for further significant freight rate increase. 
Its 6.7x P/B for FY22F has well reflected its quality but with ROE likely to dip back in FY22 and FY23, we think upside does not look impressive.


SITC International (1308 HK): All Priced In

<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> has a very spectacular 1H21, achieving a 309.4% YoY growth in net profit, even better than the high-end of the range indicated in the positive profit alert. The strength is driven by improvements in both volume (+29.4%) and freight rate (+42.3%), which supported a 6.9pp increase in dividend payout ratio to 70.6%. It is now yielding 7.8% for FY21F.While the result is good and management continued to be positive towards the volume and rate outlook, we think that the market seems to have well-factored in such expectations. In fact, we expect earnings to peak in FY21, with ROE to average at 45% for FY22-23. While this is still very decent return levels, its 12-month forward P/B of 6.3x looks to leave limited further upside. Meanwhile, we see risks that the market has overlooked the negative swing factors.

SITC International (1308 HK) has a very spectacular 1H21, achieving a 309.4% YoY growth in net profit, even better than the high-end of the range indicated in the positive profit alert. The strength is driven by improvements in both volume (+29.4%) and freight rate (+42.3%), which supported a 6.9pp increase in dividend payout ratio to 70.6%. It is now yielding 7.8% for FY21F.While the result is good and management continued to be positive towards the volume and rate outlook, we think that the market seems to have well-factored in such expectations. In fact, we expect earnings to peak in FY21, with ROE to average at 45% for FY22-23. While this is still very decent return levels, its 12-month forward P/B of 6.3x looks to leave limited further upside. Meanwhile, we see risks that the market has overlooked the negative swing factors. 

SITC International (1308 HK): Takeaways from Call, and We Are Cautious on the Downside Risk

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

For investors who are not based in Singapore, the mini lockdown in Singapore has started again due to the sudden increase in the number of community cases which previously was relatively under control. Before one thinks that it is a too-harsh of a policy, the rate of the increase of unlinked community cases in Singapore is high. This matters a lot because every Singapore residents need to check in every establishment using either an Identification card, Trace Together app, or token which has proved to be very effective as for months, most of the COVID-19 cases can be traced and therefore allows the government to take the necessary actions. 
<div class="content-highlight">
This time is different. Alongside the third wave that has hit India and Thailand, Singapore, too, is hit. The Singapore government's response to this is very much like the first lock-down (Circuit Breaker), that they minimize public interactions so that the number of community cases does not increase and provide them with the time to perform contact tracing thoroughly. 
</div>
In this report, we identify that <a href="https://www.smartkarma.com/entities/sheng-siong-group-ltd" target="_blank" data-smartkarma-citation="entities:6824:1" rel="noopener">Sheng Siong (SSG SP)</a> , <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> and <a href="https://www.smartkarma.com/entities/singapore-post-ltd" target="_blank" data-smartkarma-citation="entities:150:1" rel="noopener">Singapore Post (SPOST SP)</a>as winners while <a href="https://www.smartkarma.com/entities/comfortdelgro-corp-ltd" target="_blank" data-smartkarma-citation="entities:497:1" rel="noopener">Comfortdelgro Corp (CD SP)</a> and <a href="https://www.smartkarma.com/entities/genting-singapore-ltd" target="_blank" data-smartkarma-citation="entities:439:1" rel="noopener">Genting Singapore (GENS SP)</a>as losers.

For investors who are not based in Singapore, the mini lockdown in Singapore has started again due to the sudden increase in the number of community cases which previously was relatively under control. Before one thinks that it is a too-harsh of a policy, the rate of the increase of unlinked community cases in Singapore is high. This matters a lot because every Singapore residents need to check in every establishment using either an Identification card, Trace Together app, or token which has proved to be very effective as for months, most of the COVID-19 cases can be traced and therefore allows the government to take the necessary actions. 

This time is different. Alongside the third wave that has hit India and Thailand, Singapore, too, is hit. The Singapore government's response to this is very much like the first lock-down (Circuit Breaker), that they minimize public interactions so that the number of community cases does not increase and provide them with the time to perform contact tracing thoroughly. 

In this report, we identify that Sheng Siong (SSG SP) , Sea Ltd (SE US) and Singapore Post (SPOST SP)as winners while Comfortdelgro Corp (CD SP) and Genting Singapore (GENS SP)as losers. 

Singapore Mini Lockdown: Winners and Losers

<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> again posted a good set of result with a 59.8% YoY growth in earnings in FY20 on the back of volume growth, higher freight rate and lower costs. Gross margin expanded a massive 7.2pp YoY in the year to record high level of 26.4%. Fuel and charter costs decreased US$54m YoY but we believe such savings will not be recurrent in FY21.In the post-FY20 call, management maintains a positive view for FY21, guiding for good rate increase and volume growth. The key challenges in this year, however, are the surge in fuel and charter costs. We expect its momentum to stay good in 1H21, but will moderate in 2H21 due to a high base. Given the share price's 151% rally since 2020 and 30% YTD, SITC is highly vulnerable to profit-taking, especially as its 12-month P/B of 6.2x is more than 3SD above its historical average.

SITC International (1308 HK) again posted a good set of result with a 59.8% YoY growth in earnings in FY20 on the back of volume growth, higher freight rate and lower costs. Gross margin expanded a massive 7.2pp YoY in the year to record high level of 26.4%. Fuel and charter costs decreased US$54m YoY but we believe such savings will not be recurrent in FY21.In the post-FY20 call, management maintains a positive view for FY21, guiding for good rate increase and volume growth. The key challenges in this year, however, are the surge in fuel and charter costs. We expect its momentum to stay good in 1H21, but will moderate in 2H21 due to a high base. Given the share price's 151% rally since 2020 and 30% YTD, SITC is highly vulnerable to profit-taking, especially as its 12-month P/B of 6.2x is more than 3SD above its historical average.

SITC International (1308 HK): Good Result Priced In, Challenges from Higher Costs

In this Insight, we review our three best trades - <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>, <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> and <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> - in 2020. Based on our calls, these trades generated at least 42%, 37.5% and 81.6%, respectively, in this year, without staying 100% of the time in the market.As for 2021, we believe the current levels for <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> and <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> are still attractive in building new positions, while for <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>, we will wait for a pull-back to HK$12.0-13.0 levels before we re-establish our position.

In this Insight, we review our three best trades - Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK), Lonking Holdings (3339 HK) and SITC International (1308 HK) - in 2020. Based on our calls, these trades generated at least 42%, 37.5% and 81.6%, respectively, in this year, without staying 100% of the time in the market.As for 2021, we believe the current levels for Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) and Lonking Holdings (3339 HK) are still attractive in building new positions, while for SITC International (1308 HK), we will wait for a pull-back to HK$12.0-13.0 levels before we re-establish our position. 

Our Three Best Trades in 2020! and How Will We Position for 2021?

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

SITC International (1308 HK)