HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Cosco Shipping Energy Transportation Co. Ltd. (H) / Equity Bottom-Up

Cosco Shipping Energy Transportation Co. Ltd. (H)

<ul>
<li>
<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 (1138 HK)</a> will benefit from the oil supply worry as Israel and Iran are unlikely to reach a "real" peace agreement in the short term. </li>
<li>The worry, or actual, closure of Hormuz will raise VLCC rates by escalating reserve building, increasing demand for alternative routes, a higher risk premium, and panic chartering.</li>
<li>After yesterday's retreat, CSET trades on an undemanding 5.8x PER and 8.8% yield for FY25F. With over 12% ROE, its 0.73x P/B is cheap, below the average since 2023. </li>
</ul>



Cosco Shipping Energy Transportation (1138 HK) will benefit from the oil supply worry as Israel and Iran are unlikely to reach a "real" peace agreement in the short term. 
The worry, or actual, closure of Hormuz will raise VLCC rates by escalating reserve building, increasing demand for alternative routes, a higher risk premium, and panic chartering.
After yesterday's retreat, CSET trades on an undemanding 5.8x PER and 8.8% yield for FY25F. With over 12% ROE, its 0.73x P/B is cheap, below the average since 2023. 


COSCO Shipping Energy (1138 HK): A Viable Play on the Israel-Iran Conflict

Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

<ul>
<li>The whole sector has been derated as the oil prices collapsed</li>
<li>The capital cycle story is still intact and gets stronger as time passes</li>
<li>There is a margin of safety in the current valuations</li>
</ul>


The whole sector has been derated as the oil prices collapsed
The capital cycle story is still intact and gets stronger as time passes
There is a margin of safety in the current valuations


Opportunities in Tankers (1138.HK) As the Sector Has Discounted Most of the Issues Facing It

<ul>
<li>The P/B multiple of <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 (H) (1138 HK)</a> has pulled back to 0.8x now, from 1.3x three months ago. The risk-reward payoff has improved.</li>
<li>Historically, there is no long-term correlation between oil prices and share prices. Hence, we should not be overfocused on the recent pullback in oil prices.</li>
<li>Although the market consensus is high, FY24 should still see growth. The 3Q24 VLCC spot rate is 27.4% higher YoY, potentially boosting quarterly results and sustaining a high FY24 yield. </li>
</ul>


The P/B multiple of Cosco Shipping Energy Transportation (H) (1138 HK) has pulled back to 0.8x now, from 1.3x three months ago. The risk-reward payoff has improved.
Historically, there is no long-term correlation between oil prices and share prices. Hence, we should not be overfocused on the recent pullback in oil prices.
Although the market consensus is high, FY24 should still see growth. The 3Q24 VLCC spot rate is 27.4% higher YoY, potentially boosting quarterly results and sustaining a high FY24 yield. 


COSCO Shipping Energy (1138 HK): Better Safety Margin Now

<ul>
<li>The 20% retreat in the share price of <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 (1138 HK)</a> from the peak has well reflected the plunge in 3Q23 VLCC rates and 10% earnings downgrade.</li>
<li>4Q23 VLCC rates have rebounded 78.4% QoQ. Re-routing due to recent Houthi attacks on commercial ships at the Red Sea has reduced effective supply and is positive to rates.</li>
<li>Heightened energy security needs will drive demand. The medium-term supply pressure is mild as the VLCC orderbook equals just 2% of the existing fleet, fueling ROE for FY23-25F. </li>
</ul>


The 20% retreat in the share price of Cosco Shipping Energy Transportation (1138 HK) from the peak has well reflected the plunge in 3Q23 VLCC rates and 10% earnings downgrade.
4Q23 VLCC rates have rebounded 78.4% QoQ. Re-routing due to recent Houthi attacks on commercial ships at the Red Sea has reduced effective supply and is positive to rates.
Heightened energy security needs will drive demand. The medium-term supply pressure is mild as the VLCC orderbook equals just 2% of the existing fleet, fueling ROE for FY23-25F. 


COSCO Shipping Energy (1138 HK): Time for Another Look

<ul>
<li>
<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 (1138 HK)</a> has rallied sharply on strong earnings recovery, but this is too excessive. We think unrealistic expectation has been built on 2H23 earnings.</li>
<li>Over the last three months, the spot VLCC rate has collapsed by 90%, indicating a weakened demand outlook. The resilient share price has clearly not yet factored in this movement. </li>
<li>The recent surge in crude oil is driven by supply, not demand, factors. This has led to a 14% increase in bunker price which will heighten CSET's fuel bill.  </li>
</ul>



Cosco Shipping Energy Transportation (1138 HK) has rallied sharply on strong earnings recovery, but this is too excessive. We think unrealistic expectation has been built on 2H23 earnings.
Over the last three months, the spot VLCC rate has collapsed by 90%, indicating a weakened demand outlook. The resilient share price has clearly not yet factored in this movement. 
The recent surge in crude oil is driven by supply, not demand, factors. This has led to a 14% increase in bunker price which will heighten CSET's fuel bill.  


COSCO Shipping Energy (1138 HK): Clearly Over-Optimistic

China

COSCO SHIPPING Energy Transportation Co., Ltd. offers marine shipping services. The Company provides refined oil transportation, crude oil transportation, and other services. COSCO SHIPPING Energy Transportation also ships iron ores, dry bulks, coal, and other products.

Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK)

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52-week Range	0.00 - 0.00
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Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK)

COSCO Shipping Energy (1138 HK): A Viable Play on the Israel-Iran Conflict

CSET is poised to benefit from oil supply worries amid Israel-Iran tensions. A closure of Hormuz will raise rates by increasing alternative route...

Osbert Tang, CFA

Opportunities in Tankers (1138.HK) As the Sector Has Discounted Most of the Issues Facing It

The current negative narrative around the sector of higher oil production, lessening of sanctions and an upcoming recession provides an opportunity

Rikki Malik

COSCO Shipping Energy (1138 HK): Better Safety Margin Now

COSCO Shipping Energy issued a positive profit alert indicating net profit for FY24 at Rmb3.96bn, a 17.2% YoY increase. More importantly, the 4Q24...

Osbert Tang, CFA

COSCO Shipping Energy (1138 HK): Time for Another Look

The Red Sea crisis will continue to bode well for tanker demand as well as negatively impact capacity supply. CSET has rallied 25% from its recent...

Osbert Tang, CFA

COSCO Shipping Energy (1138 HK): Clearly Over-Optimistic

CSET's rally is excessive as the market has built up unrealistic expectations on 2H23 earnings. A weakened demand outlook and higher fuel cost...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

COSCO Shipping Energy (1138 HK): A Viable Play on the Israel-Iran Conflict

​CSET is poised to benefit from oil supply worries amid Israel-Iran tensions. A closure of Hormuz will raise rates by increasing alternative route...

Osbert Tang, CFA

Opportunities in Tankers (1138.HK) As the Sector Has Discounted Most of the Issues Facing It

The current negative narrative around the sector of higher oil production, lessening of sanctions and an upcoming recession provides an opportunity

Rikki Malik

COSCO Shipping Energy (1138 HK): Better Safety Margin Now

COSCO Shipping Energy issued a positive profit alert indicating net profit for FY24 at Rmb3.96bn, a 17.2% YoY increase. More importantly, the 4Q24...

Osbert Tang, CFA

COSCO Shipping Energy (1138 HK): Time for Another Look

The Red Sea crisis will continue to bode well for tanker demand as well as negatively impact capacity supply. CSET has rallied 25% from its recent...

Osbert Tang, CFA

COSCO Shipping Energy (1138 HK): Clearly Over-Optimistic

​CSET's rally is excessive as the market has built up unrealistic expectations on 2H23 earnings. A weakened demand outlook and higher fuel cost...

Osbert Tang, CFA

CSET is poised to benefit from oil supply worries amid Israel-Iran tensions. A closure of Hormuz will raise rates by increasing alternative route...

CSET's rally is excessive as the market has built up unrealistic expectations on 2H23 earnings. A weakened demand outlook and higher fuel cost...