HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Pacific Basin Shipping / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/pacific-basin-shipping-ltd" target="_blank" data-smartkarma-citation="entities:929:1" rel="noopener">Pacific Basin Shipping (2343 HK)</a> just announced a US$40m buyback which equals 2.5% of market capitalisation, showcasing management's confidence in the outlook.</li>
<li>At end-1Q24, it covered 68% of FY24 Handysize days at US$10,960/day and 78% of Supermax days at US$13,370/day, leaving significant room to capture the upside in 2H24.</li>
<li>Market consensus looks overly conservative with FY24 earnings of US$154m, given BDI of 1,808 YTD. The average half-year BDI and net profit since 1H20 is 1,822 and US$189m.  </li>
</ul>



Pacific Basin Shipping (2343 HK) just announced a US$40m buyback which equals 2.5% of market capitalisation, showcasing management's confidence in the outlook.
At end-1Q24, it covered 68% of FY24 Handysize days at US$10,960/day and 78% of Supermax days at US$13,370/day, leaving significant room to capture the upside in 2H24.
Market consensus looks overly conservative with FY24 earnings of US$154m, given BDI of 1,808 YTD. The average half-year BDI and net profit since 1H20 is 1,822 and US$189m.  


Pacific Basin (2343 HK): The Market Is Overly Conservative

<ul>
<li>
<a href="https://www.smartkarma.com/entities/pacific-basin-shipping-ltd" target="_blank" data-smartkarma-citation="entities:929:1" rel="noopener">Pacific Basin Shipping (2343 HK)</a> has a weaker-than-expected 2H23, but we are glad that its unit cost has come down. Also, FY24F and FY25F should be years of recovery.</li>
<li>Current spot rates as indicated by BDI are significantly higher than 1H23 and YTD average, suggesting an upside for realised rates in the rest of this year. </li>
<li>Supply pressure will be alleviated by the issues at Panama and Suez Canals, while China may be a factor in YoY demand improvement. Net gearing of 2% is light. </li>
</ul>



Pacific Basin Shipping (2343 HK) has a weaker-than-expected 2H23, but we are glad that its unit cost has come down. Also, FY24F and FY25F should be years of recovery.
Current spot rates as indicated by BDI are significantly higher than 1H23 and YTD average, suggesting an upside for realised rates in the rest of this year. 
Supply pressure will be alleviated by the issues at Panama and Suez Canals, while China may be a factor in YoY demand improvement. Net gearing of 2% is light. 


Pacific Basin (2343 HK): An Upturn in the Making

<p>The 3Q21 trading update for <a href="https://www.smartkarma.com/entities/pacific-basin-shipping-ltd" target="_blank" data-smartkarma-citation="entities:929:1" rel="noopener">Pacific Basin Shipping (2343 HK)</a> painted a positive picture for the earnings performance for 2H21 and FY22. There is good QoQ improvement in time-charter equivalents for its Handysize and Supramax fleet in 3Q21, which are 69.3% and 98.6%, respectively, higher than 1H21. On such basis, we estimate that its 3Q21 profit may be some 33% more than 1H21, blowing away market consensus by sizeable margin.</p><p>Additionally, the growth in minor bulk trade, particularly construction materials, cement and clinker and grains, has underpinned good Handysize and Supramax demand. The supply pressure is also light as net fleet growth is expected to be 3% and 1.8% for FY21 and FY22, respectively. We also think Pacific Basin may take opportunistic disposals of vessel to capture the favourable capital value movements. All in all, we think that having retreated 25% from the peak, the stock has returned to more attractive valuation multiples.</p>

The 3Q21 trading update for Pacific Basin Shipping (2343 HK) painted a positive picture for the earnings performance for 2H21 and FY22. There is good QoQ improvement in time-charter equivalents for its Handysize and Supramax fleet in 3Q21, which are 69.3% and 98.6%, respectively, higher than 1H21. On such basis, we estimate that its 3Q21 profit may be some 33% more than 1H21, blowing away market consensus by sizeable margin.Additionally, the growth in minor bulk trade, particularly construction materials, cement and clinker and grains, has underpinned good Handysize and Supramax demand. The supply pressure is also light as net fleet growth is expected to be 3% and 1.8% for FY21 and FY22, respectively. We also think Pacific Basin may take opportunistic disposals of vessel to capture the favourable capital value movements. All in all, we think that having retreated 25% from the peak, the stock has returned to more attractive valuation multiples.

Pacific Basin Shipping (2343 HK): Stellar 2H21 in the Making

Thematic (Sector/Industry)

<ul>
<li>There is no immediate impact of termination of 2M Alliance between <a href="https://www.smartkarma.com/entities/ap-moller-maersk-a-s" target="_blank" data-smartkarma-citation="entities:24755:1" rel="noopener">Ap Moller - Maersk A/S (MAERSKA DC)</a> and Mediterranean Shipping Company in 2025, but there are some long-term implications.</li>
<li>The change in competitive landscape will add uncertain operating variables to <a href="https://www.smartkarma.com/entities/china-cosco-holdings-h" target="_blank" data-smartkarma-citation="entities:286:1" rel="noopener">COSCO Shipping Holdings (1919 HK)</a> and <a href="https://www.smartkarma.com/entities/orient-overseas-international" target="_blank" data-smartkarma-citation="entities:801:1" rel="noopener">Orient Overseas International (316 HK)</a> as there is possibility of stiffer industry competition. </li>
<li>Port companies like <a href="https://www.smartkarma.com/entities/cosco-shipping-ports-ltd" target="_blank" data-smartkarma-citation="entities:360:1" rel="noopener">Cosco Shipping Ports (1199 HK)</a> and <a href="https://www.smartkarma.com/entities/china-merchants-port-holdings-company-ltd" target="_blank" data-smartkarma-citation="entities:15155:1" rel="noopener">China Merchants Port (144 HK)</a> may see improvement in their relative bargaining power, with potentially lower bulk volume discounts offered. </li>
</ul>


There is no immediate impact of termination of 2M Alliance between Ap Moller - Maersk A/S (MAERSKA DC) and Mediterranean Shipping Company in 2025, but there are some long-term implications.
The change in competitive landscape will add uncertain operating variables to COSCO Shipping Holdings (1919 HK) and Orient Overseas International (316 HK) as there is possibility of stiffer industry competition. 
Port companies like Cosco Shipping Ports (1199 HK) and China Merchants Port (144 HK) may see improvement in their relative bargaining power, with potentially lower bulk volume discounts offered. 


China Shipping Sector: Impacts of the Termination of 2M Alliance

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyzed the latest HK SFC report for aggregate short position as of Mar 15th.</li>
<li>Top short increases and decreases were tabulated for one week and four week period. </li>
<li>We highlight short changes in Techtronic Ind, Zijin Mining, Innovent Bio, Kuaishou, Pacific Basin, Citic Sec, Link Reit, CKI.</li>
</ul>


We analyzed the latest HK SFC report for aggregate short position as of Mar 15th.
Top short increases and decreases were tabulated for one week and four week period. 
We highlight short changes in Techtronic Ind, Zijin Mining, Innovent Bio, Kuaishou, Pacific Basin, Citic Sec, Link Reit, CKI.


HK Short Interest Weekly: Techtronic Ind, Zijin Mining, Innovent Bio, Kuaishou, Pacific Basin

Hong Kong

Pacific Basin Shipping Limited, through its subsidiaries, provides marine transportation services and logistical support to its customers through the commercial operation of a large, modern, and uniformly-sized fleet of shallow-draft Handysize dry bulk carriers.

Pacific Basin Shipping (2343 HK)

Pacific Basin (2343 HK): The Market Is Overly Conservative

Pacific Basin announces US$40m share buyback, showing management's confidence in the outlook. Its vessel day coverage for FY24 leaves room for...

Osbert Tang, CFA

Pacific Basin (2343 HK): An Upturn in the Making

Pacific Basin has a weaker-than-expected 2H23 but unit costs are lower. In FY24F and FY25F, there will be potential recovery. Higher spot rates...

Osbert Tang, CFA