Equity analyst - Containers, Drewry Maritime Financial Research

Nilesh Tiwary

Equity analyst - Containers

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.

Thematic (Sector/Industry)

<div>Most of the shipping stocks fell in the third week of January after the breakout of the corona virus caused multiple casualties in China. Nonetheless, we expect limited impact on container shipping companies in the longer term. However, if the severity of the outbreak increases, industrial production and retail sales could be affected, leading to rising inventory on ports. In addition, some carriers have warned of a temporary shortage of containers because, 1) Chinese New Year has been extended in China, 2) a shortage of customs and port labour could hold containers. Meanwhile, our overall view remains unchanged towards the stocks under coverage. If the situation is well managed and contained and depending on economic impact and valuations, we may consider revising our fair values. For now, the shock to demand and the macro environment would more likely be short term rather than the long term.</div>

Most of the shipping stocks fell in the third week of January after the breakout of the corona virus caused multiple casualties in China. Nonetheless, we expect limited impact on container shipping companies in the longer term. However, if the severity of the outbreak increases, industrial production and retail sales could be affected, leading to rising inventory on ports. In addition, some carriers have warned of a temporary shortage of containers because, 1) Chinese New Year has been extended in China, 2) a shortage of customs and port labour could hold containers. Meanwhile, our overall view remains unchanged towards the stocks under coverage. If the situation is well managed and contained and depending on economic impact and valuations, we may consider revising our fair values. For now, the shock to demand and the macro environment would more likely be short term rather than the long term.

Container Shipping - Coronavirus and Initial Thoughts

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<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> is expected to declare a special dividend when it holds a board meeting on 20 Dec 2019, and we believe this will lift its payout ratio to 83% in FY19, from 71% in FY18. This showcases the company's underlying operation is sound, financial health is solid and management is confident on outlook.Our discussion with the company suggests that momentum has improved in 4Q19 with stronger freight rate and volume, after a dip in 3Q19. In the longer term, it has taken proactive moves to lower its cost and capture the structural trend of manufacturing migration from North Asia to South/Southeast Asia. Despite an 18.7pp outperformance in 2019, we continue to like SITC.

SITC International (1308 HK) is expected to declare a special dividend when it holds a board meeting on 20 Dec 2019, and we believe this will lift its payout ratio to 83% in FY19, from 71% in FY18. This showcases the company's underlying operation is sound, financial health is solid and management is confident on outlook.Our discussion with the company suggests that momentum has improved in 4Q19 with stronger freight rate and volume, after a dip in 3Q19. In the longer term, it has taken proactive moves to lower its cost and capture the structural trend of manufacturing migration from North Asia to South/Southeast Asia. Despite an 18.7pp outperformance in 2019, we continue to like SITC. 

SITC International (1308 HK): Positive Picture for 2020

The 3Q19 operating statistics announced by <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> showed that the average freight rate growth has moderated in the quarter. However, this is offset by a slight pick-up in overall container volume, which continued to fuel a healthy rise in revenue for the quarter.We expect the retreat in average bunker price in 3Q19 is one of the reasons for the lower freight rate, as surcharges may have adjusted marginally. Also, change in volume mix may also contribute to the pullback. We do not expect the trend to affect the profitability of the company. In fact, with the bunker price dropped by almost 9% YoY in 2H19, SITC's margin will potentially be better when compared with last year.

The 3Q19 operating statistics announced by SITC International (1308 HK) showed that the average freight rate growth has moderated in the quarter. However, this is offset by a slight pick-up in overall container volume, which continued to fuel a healthy rise in revenue for the quarter.We expect the retreat in average bunker price in 3Q19 is one of the reasons for the lower freight rate, as surcharges may have adjusted marginally. Also, change in volume mix may also contribute to the pullback. We do not expect the trend to affect the profitability of the company. In fact, with the bunker price dropped by almost 9% YoY in 2H19, SITC's margin will potentially be better when compared with last year. 

SITC International (1308 HK): Moderating Freight Rate in 3Q19 Not a Concern

<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> is an exceptional shareholder value creator, despite its operation in a traditional volatile low-return container shipping industry. Since its listing in 2010, it has delivered a 76% profit growth, achieved a 4.7ppt improvement in ROE to 19.7% and sustained a steadily rising dividend payout ratio from 36% to 71%.
SITC's share price has increased by over 70% since its IPO, with aggregate dividends of HK$2.16 being paid, translating into a return of 10% annually over such period. Moreover, it is currently still in a net cash position. 
We believe SITC's niche market focus, sound business model and excellent management quality will sustain this trend. With projected ROE to further expand in the next two years, the stock's current valuations are inexpensive, in our view.

Sitc International (1308 HK) is an exceptional shareholder value creator, despite its operation in a traditional volatile low-return container shipping industry. Since its listing in 2010, it has delivered a 76% profit growth, achieved a 4.7ppt improvement in ROE to 19.7% and sustained a steadily rising dividend payout ratio from 36% to 71%.
SITC's share price has increased by over 70% since its IPO, with aggregate dividends of HK$2.16 being paid, translating into a return of 10% annually over such period. Moreover, it is currently still in a net cash position. 
We believe SITC's niche market focus, sound business model and excellent management quality will sustain this trend. With projected ROE to further expand in the next two years, the stock's current valuations are inexpensive, in our view.

SITC International (1308 HK): Creator of Shareholder Value

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Over the past several weeks we have outlined the case for our increasingly bullish outlook, noting that market internals remain favorable and S&amp;P 500 and MSCI ACWI price trends are showing evidence of early-stage uptrend formations. In today’s report we provide an overview of international markets and highlight our top recommendations.

Over the past several weeks we have outlined the case for our increasingly bullish outlook, noting that market internals remain favorable and S&amp;P 500 and MSCI ACWI price trends are showing evidence of early-stage uptrend formations. In today’s report we provide an overview of international markets and highlight our top recommendations.

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.

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SITC International (1308 HK)

Container Shipping - Coronavirus and Initial Thoughts

Most of the shipping stocks fell in the third week of January after the breakout of the corona virus caused multiple casualties in China....

Drewry Maritime Financial Research