In this briefing:
- Daelim Industrial Share Class: One of Prefs to Arb Trade on Div Payout Record Date
- TRACKING TRAFFIC/Containers & Air Cargo: Container Rates Up
1. Daelim Industrial Share Class: One of Prefs to Arb Trade on Div Payout Record Date
- Daelim Industrial (000210 KS) is one of the main targets of local activist movement. This makes a setting for higher dividends. Common div yield to 1.58% and Pref to 4.18%. Difference is 2.59%p. This is the widest gap in many years.
- Pref is currently at a 60.89% discount to Common. Among those > ₩100bil MC prefs, it is the second highest discounted pref, only behind CJ Cheiljedang 1P (097955 KS). Local street expects at least ₩1,600 div per share. This should be a conservative estimate. On a 20D MA, Pref is above +1 σ.
- Dec 26 is record date of dividend payout. I expect a price catchup movement tomorrow in favor of Pref. I’d go long Pref and short Common as early in the morning as possible.
2. TRACKING TRAFFIC/Containers & Air Cargo: Container Rates Up
Tracking Traffic/Containers & Air Cargo is the hub for all of our research on container shipping and air cargo, featuring analysis of monthly industry data, notes from our conversations with industry participants, and links to recent company and thematic pieces.
Tracking Traffic/Containers & Air Cargo aims to highlight changes to existing trends, relationships, and views affecting the leading Asian companies in these two sectors. This month’s note includes data from about twenty different sources.
In this issue readers will find:
- An analysis of November container shipping rates, which our index suggests increased by over 20% Y/Y. We concede that our index skews toward volatile spot rates rather than contract rates, but we suspect higher average container rates in Q418, combined with moderating fuel prices, will result in surprisingly strong earnings for the quarter.
- A look at November air cargo activity and air cargo pricing, which diverged. The volume of air cargo handled by the five airlines we track declined slightly (-0.1% Y/Y) but some of those carriers reported sharply higher yields (circa +10% Y/Y), due to limited capacity expansion in the region.
- Some good news: fuel prices have continued to moderate. Bunker climbed by just 5.1% Y/Y as of mid-December, and jet fuel prices have fallen about 11% Y/Y. Given firm container rates and air cargo pricing, the drop in fuel prices bodes well for Q418 margins, though it’s unclear whether such gains are sustainable.
Although slowing demand growth is unlikely to generate impressive top-line improvements, firmer pricing combined with lower fuel costs should support an ongoing improvement in profitability for container carriers and air cargo operations in the near-term. We believe many investors remain too pessimistic regarding near-term earnings for container carriers and airlines.
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