20180608-交银国际证券-海丰国际-01308.HK-Fuel_surcharge_props_freight_rate__prudent_on_capacity_growth_5页_565kb

SITC (1308 HK) Summary: Container Shipping Sector Analysis

Core Content Overview

This report provides an analysis of SITC (1308 HK), a container shipping company, focusing on its financial performance, strategic direction, and stock valuation as of 8 June 2018. It highlights the company's cautious approach to capacity expansion, the impact of rising freight rates due to fuel surcharges, and its plans for fleet growth. The report concludes with a "Buy" stock rating and revised target price based on 3-year P/E valuation.

Key Financial Highlights

Main Points and Views

Capacity Growth Strategy

• In 1Q18, SITC reduced the number of chartered vessels due to rising charter rates for small container ships.
• Management has been cautious about aggressive capacity expansion, unlike the past two years (10.8% and 8.9% YoY growth).
• The company is preparing to order new vessels once the IMO pollution reduction specifications for 2020 are finalized.
• SITC expects to receive 4 new vessels in 3Q18 to meet peak season demand in 4Q18.

Freight Rate Trends

• The average freight rate in 1Q18 was US$536/TEU, up 13.3% YoY.
• The increase is attributed to a rise in fuel surcharges and other regional surcharges.
• Management expects further surcharge increases to offset rising costs and maintain margin performance.

Earnings Forecast and Target Price

• The company revised its earnings forecast and raised the target price to HK$10.30 (from HK$9.00), representing a +12.8% upside.
• The target price is based on a 3-year P/E valuation at the high end, equivalent to 15x P/E on the forecast FY18 EPS.

Stock Performance and Rating

• Stock Rating: Buy
• Stock Performance: The stock has shown a YTD change of +19.8%.
• 52-week high: HK$9.29
• 52-week low: HK$5.23
• Market Cap (HK$ m): 24,335
• Average Daily Volume (m): 11.1

Financial Ratios and Indicators

• EBITDA Margin (%): 15.4 (2016) to 23.0 (2020)
• EBIT Margin (%): 11.0 (2016) to 19.2 (2020)
• ROE (%): 13.8 (2016) to 25.9 (2020)
• ROA (%): 8.4 (2016) to 15.1 (2020)
• ROIC (%): 9.4 (2016) to 17.0 (2020)
• Inventory Turnover (days): 4.1 (2016) to 4.8 (2020)
• Dividend Payout (%): 71.3 (2016) to 79.1 (2020)

Strategic Outlook

• SITC remains keen to expand its fleet to meet future business demands.
• The company has sufficient liquidity, with US$517m in cash at the end of 2017.
• Management is focused on maintaining margins through surcharges and efficient cost management.

Analyst Certification and Disclosure

• The report is authored by BOCOM Int'l analysts and is not influenced by insider information.
• The analysts have not traded in the stock covered in the report within 30 days prior to its release.
• There are no direct financial interests in the subject securities, except for one analyst who holds shares of Shimao Property Holdings Limited.

Business Relationships Disclosure

• BOCOM International has investment banking relationships with several listed companies, including Orient Securities, Everbright Securities, and Guolian Securities.
• BOCOM International Global Investment Limited holds more than 1% of equity in several securities mentioned in the report.

Disclaimer

• This report is for private circulation only and is strictly confidential.
• It is not an offer or recommendation to buy or sell any securities.
• BOCOM International Securities Ltd does not guarantee the accuracy or completeness of the information provided.
• Investors are advised to consult their own financial advisers before making any investment decisions.