Lead Analyst, Credit Research, Drewry Maritime Financial Research

Konstantinos Oikonomopoulos

Lead Analyst, Credit Research

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.

Credit

Strong profitability thanks to an improved market, NOL's contribution and Ocean Alliance network efficiencies  Record revenues in FY17: Top line surged by 32% y/y at the end of the year at USD 21bn of which USD 5.9bn were contributed by NOL. On a stand-alone basis and in order to compare accurately performance (NOL consolidation since June 2016), CMA CGM’s sales grew by circa 14% on FY17 revenue of USD 15.2bn vs USD 13.4bn a year before. The consolidated group benefitted from a 21% surge y/y…

Strong profitability thanks to an improved market, NOL's contribution and Ocean Alliance network efficiencies  Record revenues in FY17: Top line surged by 32% y/y at the end of the year at USD 21bn of which USD 5.9bn were contributed by NOL. On a stand-alone basis and in order to compare accurately performance (NOL consolidation since June 2016), CMA CGM’s sales grew by circa 14% on FY17 revenue of USD 15.2bn vs USD 13.4bn a year before. The consolidated group benefitted from a 21% surge y/y…

Container Shipping - Can CMA CGMs Bonds Withstand the Selling Pressure from the Broader Bond Market?

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Equity Bottom-Up

On the afternoon of Friday, March 23rd, <a href="https://www.smartkarma.com/entities/15428" target="_blank" data-smartkarma-citation="entities:15428:1">Evergreen Marine Corp Ltd (2603 TT)</a> reported FY17 preliminary results, which show the company made Operating and Net losses in Q417. After several consecutive quarters of steady improvements in core profitability, we were surprised to see the company post a significant Operating loss in the December quarter -- and we believe we are far more pessimistic on the container sector cycle than many observers, having turned negative on the sector several months…

On the afternoon of Friday, March 23rd, Evergreen Marine Corp Ltd (2603 TT) reported FY17 preliminary results, which show the company made Operating and Net losses in Q417. After several consecutive quarters of steady improvements in core profitability, we were surprised to see the company post a significant Operating loss in the December quarter -- and we believe we are far more pessimistic on the container sector cycle than many observers, having turned negative on the sector several months…

'Trade War' Chatter & A Surprise Q4 Loss: Time to Revisit Long CAL/Short Evergreen Pair Trade

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Event-Driven

Currently, Daewoo Shipbuilding &amp; Marine Engineering (042660 KS) is one of the Korea's hottest stocks that are making many investors quite happy. This year alone, DSME shares have more than doubled. (DSME 3M price chart - Courtesy Naver Finance)DateClosing price (₩)Daily ΔTrade volumeTrade value (₩)Market cap (₩ mil)2018/03/2026,6505.34%1,204,51431,556,428,4502,842,3902018/03/1925,300-2.88%408,38410,348,629,6502,698,4042018/03/1626,050-2.62%534,92313,928,307,2002,778,3962018/03/1526,7505.31%1,052,39527,262,524,3002,853,0562018/03/1425,400-6.45%1,142,87729,362,840,0502,709,0702018/03/1327,150-1.81%1,340,09435,770,234,1502,895,7182018/03/1227,6502.22%455,95812,522,455,5002,949,0462018/03/0927,0500.56%1,003,74527,637,639,6502,885,0532018/03/0826,9002.09%817,98122,014,244,9002,869,0542018/03/0726,3500.96%1,482,88139,900,758,8502,810,3932018/03/0626,10010.36%1,267,72732,251,616,7002,783,7292018/03/0523,650-3.67%497,17911,979,914,2502,522,4212018/03/0224,550-1.80%529,67112,948,693,5002,618,4122018/02/2825,0000.20%733,64818,568,280,4502,666,4072018/02/2724,9500.00%604,30014,963,480,3002,661,0742018/02/2624,9501.84%961,53724,143,424,4502,661,0742018/02/2324,5007.69%1,670,74940,599,078,9002,613,0792018/02/2222,7500.66%1,109,21525,570,608,1502,426,4312018/02/2122,6006.10%730,55616,186,340,6502,410,4322018/02/2021,300-2.52%639,38013,895,574,0502,271,7792018/02/1921,8508.98%858,00518,578,074,7502,330,4402018/02/1420,0505.80%306,9846,057,677,0002,138,4592018/02/1318,950-2.82%410,5077,903,616,3502,021,1372018/02/1219,500-5.34%1,020,22820,062,908,7002,079,7982018/02/0920,600-3.96%632,15012,995,170,9002,197,1202018/02/0821,4502.63%964,18020,247,724,0002,287,7772018/02/0720,900-5.00%686,58815,029,868,9502,229,1162018/02/0622,0000.00%1,303,24727,957,493,5002,346,4382018/02/0522,000-5.78%789,14317,761,460,7502,346,4382018/02/0223,350-0.43%928,45821,767,425,5502,490,4242018/02/0123,450-3.30%689,13516,222,407,5502,501,0902018/01/3124,2502.11%1,368,90831,629,987,2002,586,4152018/01/3023,7505.79%1,859,12943,981,051,4502,533,0872018/01/2922,4503.70%953,73721,266,539,3502,394,4342018/01/2621,6502.36%1,234,47427,171,036,7002,309,1092018/01/2521,1506.82%1,587,98833,237,115,9002,255,7802018/01/2419,8001.54%769,98715,247,511,4502,111,7952018/01/2319,5000.52%678,05013,101,614,0502,079,7982018/01/2219,4007.18%1,091,23720,707,064,0502,069,1322018/01/1918,1000.84%244,9824,436,406,7501,930,4792018/01/1817,950-1.10%247,3804,416,216,1501,914,4802018/01/1718,150-4.47%728,90513,218,451,1501,935,8122018/01/1619,000-0.52%637,65612,001,978,7502,026,4692018/01/1519,10010.40%1,839,22434,190,721,5502,037,1352018/01/1217,3008.81%905,95715,390,516,3001,845,1542018/01/1115,9000.00%325,2265,199,480,8501,695,8352018/01/1015,9003.25%426,6556,809,135,7501,695,8352018/01/0915,400-3.14%264,0534,092,737,8001,642,5072018/01/0815,900-3.93%284,6414,550,992,8001,669,9582018/01/0516,5500.30%244,2824,036,460,9501,738,2272018/01/0416,500-4.07%526,4589,002,148,7001,732,9752018/01/0317,20012.05%819,97313,694,498,4001,806,4962018/01/0215,35010.43%382,0635,619,200,4001,612,192Source: KRXWhat's really going on here?Simple. DSME is getting really a lot of support from the government through the KDB which owns a 55.72% stake in DSME.DSME shareholding structureKDB59,738,21155.72%KEB Hana Bank9,015,5638.41%Woori Bank1,983,8411.85%KB Bank1,982,6511.85%Hana Financial Investment371,7470.35%Jeong Seong-rib7,4560.01%KB Securities7,4100.01%Total73,106,87968.19%Source: FnGuideWhat's the story here? Last year, Hyundai Merchant Marine (011200 KS) needed 10 300Kt grade VLCCs (very large crude oil carrier) worth about ₩1tril. It was arranged that HMM would get 5 VLCCs in the first round and another 5 in the second round later. With the carefully executed coordination of the KDB, all of the 5 VLCCs ordered by HMM for the first round went to DSME. No wonder huh? The KDB is the major shareholder of both HMM and DSME, and the KDB needed to maximize the valuation of both companies in order to make an exit. Then where did this ₩1tril come from? This was the money from the ₩2.6tril worth of the shipbuilding support program fund set up by the government soon after the collapse of Hanjin Shipping.DMSE's expected annual sales size for this year (2018) is about ₩8.4tril (FnGuide consensus compiled by the 5 local brokerages). So, this'd be only about 6% of its total annual sales. But what's important is how significant this would be to DSME's profitability. It is generally thought and believed that HMM's 5 ship orders are the main contributor to DSME's dramatic turnaround this year.FnGuide market consensus for DSME (₩ bil)2018E2019ESales8,469.37,311.7OP275.5312.3NP attributable to controlling stake276.2315.7Assets11,982.311,220.2Liabilities8,519.47,483.7Equity attributable to controlling stake3,888.24,159.6EPS (₩)2,5792,945BPS (₩)36,26838,800PER (x)9.818.59PBR (x)0.700.65Source: FnGuideHMM's first round of order (5 VLCCs) was worth ₩475.7bil. The original plan was HMM would place another 5 VLCCs order to DSME early this year. But HMM opted not to do it. Instead, it is being said that HMM will focus on container ship building. The current plan is building a total of 20 large container ships (12 22K TEU grade container ships and 8 14K TEU grade container ships) as a part of its grand plan to become a 1M TEU shipping company (HMM's current size is 330K TEU. No worry for DSME though because it is widely expected that most of these container ship building orders will again go to DSME.Thanks to the government (the KDB)'s huge help, DSME is really shining compared with its local peers valuation wise. It is the only one to turn a serious profit this year among Korea's Big Three shipbuilders. It will generate more sales than Samsung Heavy and way more profits than even Hyundai Heavy. But its market cap is still only about half of Samsung Heavy. On a PBR, DSME may not look terribly undervalued compared with Samsung Heavy. But considering that a large part of Samsung Heavy's assets are stuck with the struggling offshore plant business, we really come down to this point that DSME is seriously undervalued compared with Samsung Heavy. Yes, this means that DSME shares still seem to have more upside potential.FnGuide market consensus for DSME (₩ bil)DSMEHyundai HeavySamsung Heavy2018E2019E2018E2019E2018E2019ESales8,469.37,311.713,609.015,024.06,843.17,719.2OP275.5312.3-116.7206.179.738.9NP to controlling stake276.2315.7-90.2127.373.638.3Assets11,982.311,220.231,425.631,527.413,700.413,862.4Liabilities8,519.47,483.717,482.417,428.27,094.47,693.6Equity to controlling stake3,888.24,159.613,943.214,099.36,606.06,168.8EPS (₩)2,5792,945-1,3541,84118998BPS (₩)36,26838,800197,099198,67020,01618,521PER (x)9.818.59N/A76.8743.3883.25PBR (x)0.700.650.720.710.410.44Market cap (as of Mar 20)2,698.49,786.95,157.6Source: FnGuide

DSME, HMM & KDB - Understanding Relationship Dynamics

We began to turn cautious on container shipping last Summer and became more negative as Summer turned to Fall. Our view was that average freight rates and carrier profitability had improved sharply in the months following <a href="https://www.smartkarma.com/entities/18689" target="_blank" data-smartkarma-citation="entities:18689:1">Hanjin Shipping Co Ltd (117930 KS)</a>'s August 2016 bankruptcy, and that further fundamental improvements would be much harder to come by. About six months after turning cautious on container shipping, we remain negative on the sector, and we believe 2018 will turn out to be worse…

We began to turn cautious on container shipping last Summer and became more negative as Summer turned to Fall. Our view was that average freight rates and carrier profitability had improved sharply in the months following Hanjin Shipping Co Ltd (117930 KS)'s August 2016 bankruptcy, and that further fundamental improvements would be much harder to come by. About six months after turning cautious on container shipping, we remain negative on the sector, and we believe 2018 will turn out to be worse…

Container Shipping Sector: Six Months of Declining Share Prices Explained in Three Charts

Equity analyst - Containers, Drewry Maritime Financial Research

Nilesh Tiwary

Equity analyst - Containers

Problems galore: HMM’s woes seem to be compounding, despite the industry facing one of its best periods in 2017. Not only did the company fail to register a single profit last year, but has even failed to contain its ballooning debt. As of 3Q17, HMM’s overall debt of KRW 2tr (USD 1.8bn) and net gearing of 250% is among the highest in the industry. Additionally, even if the scenario unfolds positively starting 2019, the charter payments will come back to haunt the company, raising its operating…

Problems galore: HMM’s woes seem to be compounding, despite the industry facing one of its best periods in 2017. Not only did the company fail to register a single profit last year, but has even failed to contain its ballooning debt. As of 3Q17, HMM’s overall debt of KRW 2tr (USD 1.8bn) and net gearing of 250% is among the highest in the industry. Additionally, even if the scenario unfolds positively starting 2019, the charter payments will come back to haunt the company, raising its operating…

Hyundai Merchant Marine - Recovery Not in Sight

South Korea

HMM Co., Ltd. provides marine transportation services.  The Company commands different types of vessels including full container vessels, oil tankers, car carriers, LNG carriers, bulk carriers, and tramps.

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HMM Co., Ltd. (011200 KS)

Container Shipping - Can CMA CGMs Bonds Withstand the Selling Pressure from the Broader Bond Market?

Strong profitability thanks to an improved market, NOL's contribution and Ocean Alliance network efficiencies Record revenues in FY17: Top line...

Drewry Maritime Financial Research

'Trade War' Chatter & A Surprise Q4 Loss: Time to Revisit Long CAL/Short Evergreen Pair Trade

On the afternoon of Friday, March 23rd, Evergreen Marine Corp Ltd (2603 TT) reported FY17 preliminary results, which show the company made...

Daniel Hellberg

DSME, HMM & KDB - Understanding Relationship Dynamics

Currently, Daewoo Shipbuilding & Marine Engineering (042660 KS) is one of the Korea's hottest stocks that are making many investors quite...

Sanghyun Park

Hyundai Merchant Marine - Recovery Not in Sight

Problems galore: HMM’s woes seem to be compounding, despite the industry facing one of its best periods in 2017. Not only did the company fail to...

Drewry Maritime Financial Research

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Container Shipping - Can CMA CGMs Bonds Withstand the Selling Pressure from the Broader Bond Market?

Strong profitability thanks to an improved market, NOL's contribution and Ocean Alliance network efficiencies Record revenues in FY17: Top line...

Drewry Maritime Financial Research

'Trade War' Chatter & A Surprise Q4 Loss: Time to Revisit Long CAL/Short Evergreen Pair Trade

On the afternoon of Friday, March 23rd, Evergreen Marine Corp Ltd (2603 TT) reported FY17 preliminary results, which show the company made...

Daniel Hellberg

DSME, HMM & KDB - Understanding Relationship Dynamics

Currently, Daewoo Shipbuilding & Marine Engineering (042660 KS) is one of the Korea's hottest stocks that are making many investors quite...

Sanghyun Park

Container Shipping Sector: Six Months of Declining Share Prices Explained in Three Charts

We began to turn cautious on container shipping last Summer and became more negative as Summer turned to Fall. Our view was that average freight...

Daniel Hellberg

Hyundai Merchant Marine - Recovery Not in Sight

Problems galore: HMM’s woes seem to be compounding, despite the industry facing one of its best periods in 2017. Not only did the company fail to...

Drewry Maritime Financial Research