HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

Orient Overseas (International) / Equity Bottom-Up

<ul>
<li>We continue to adopt this strategy, as the outlook for <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> is weaker than <a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a>, which generated 51pp in the last year. </li>
<li>For FY26-27, OOIL will face more bunker and capacity pressure. Its metrics are less attractive, for example, dividend yield of 1.2-2%, vs. SITC's 7.6-9.2%.</li>
<li>OOIL is more expensive at 25x FY26F PER, against 11.3x for SITC. While SITC's P/B is the highest among peers, it has an enviable average ROE of 42.8%.</li>
</ul>


We continue to adopt this strategy, as the outlook for Orient Overseas International (316 HK) is weaker than SITC International (1308 HK), which generated 51pp in the last year. 
For FY26-27, OOIL will face more bunker and capacity pressure. Its metrics are less attractive, for example, dividend yield of 1.2-2%, vs. SITC's 7.6-9.2%.
OOIL is more expensive at 25x FY26F PER, against 11.3x for SITC. While SITC's P/B is the highest among peers, it has an enviable average ROE of 42.8%.


China Pair Trade Update: Long SITC Intl (1308 HK), Short OOIL (316 HK)

<ul>
<li>
<a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a>'s 93.5% profit growth in FY24 is at the top-end of the positive profit alert. A final DPS of HK$1.4 put it on a 7.3% dividend yield. </li>
<li>The FY25 long-term contract rate is expected to rise 10%, with volume growing at least 5% and lower costs. The consensus forecast of a 23.1% earnings decline is too conservative. </li>
<li>Having an ROE of 32% for FY25F, its 12-month forward P/B of 2.46x (vs. average of 2.59x) with net cash equals 5.4% of market capitalisation are inexpensive. </li>
</ul>



SITC International (1308 HK)'s 93.5% profit growth in FY24 is at the top-end of the positive profit alert. A final DPS of HK$1.4 put it on a 7.3% dividend yield. 
The FY25 long-term contract rate is expected to rise 10%, with volume growing at least 5% and lower costs. The consensus forecast of a 23.1% earnings decline is too conservative. 
Having an ROE of 32% for FY25F, its 12-month forward P/B of 2.46x (vs. average of 2.59x) with net cash equals 5.4% of market capitalisation are inexpensive. 


SITC International (1308 HK): Another Strong Year, with Excellent Yield

<ul>
<li>Lower average freight rate momentum and deceleration in 4Q24 load factor expansions for <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> have raised alarm for a weaker industry outlook.</li>
<li>Spot freight rate has come down by 6.8% in the last two weeks. The potential ease of conflicts in Ukraine and the Middle East may induce a capacity return.</li>
<li>The consensus forecasts for FY25-26 have been downgraded by 5-9%, suggesting caution in the market. Its dividend yield will lower from 14.0% in FY24 to just 4.3% in FY26.</li>
</ul>


Lower average freight rate momentum and deceleration in 4Q24 load factor expansions for Orient Overseas International (316 HK) have raised alarm for a weaker industry outlook.
Spot freight rate has come down by 6.8% in the last two weeks. The potential ease of conflicts in Ukraine and the Middle East may induce a capacity return.
The consensus forecasts for FY25-26 have been downgraded by 5-9%, suggesting caution in the market. Its dividend yield will lower from 14.0% in FY24 to just 4.3% in FY26.


Orient Overseas Intl (316 HK): Initial Warning Signs?

<ul>
<li>Together with the just-announced HK$0.40 special DPS, <a href="https://www.smartkarma.com/entities/sitc-international-holdings" target="_blank" data-smartkarma-citation="entities:15301:1" rel="noopener">SITC International (1308 HK)</a> has already handed back HK$1.12/share to shareholders YTD, realising a dividend yield of 6.5%.</li>
<li>Its 3Q24 performance is impressive, with revenue surging 56.6% YoY. Both volume (+13.4%) and average freight rates (+44.1%) have exhibited solid momentum. </li>
<li>While the consensus forecasts have been upgraded by 7-11% since the 1H24 result, there appears more room to go. FY24 ROE is now expected to be 32.2%.</li>
</ul>


Together with the just-announced HK$0.40 special DPS, SITC International (1308 HK) has already handed back HK$1.12/share to shareholders YTD, realising a dividend yield of 6.5%.
Its 3Q24 performance is impressive, with revenue surging 56.6% YoY. Both volume (+13.4%) and average freight rates (+44.1%) have exhibited solid momentum. 
While the consensus forecasts have been upgraded by 7-11% since the 1H24 result, there appears more room to go. FY24 ROE is now expected to be 32.2%.


<ul>
<li>
<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> sits on decent yields of 12% for FY24 and 9.6% for FY25. Its net cash (66.2% of the share price) can support such dividends.</li>
<li>Despite the retreat from the recent peak, the spot freight rates are 9.7% and 145% higher than 1H24 and 2H23 respectively, pointing to better 2H24 earnings.</li>
<li>Operationally, it recorded the first YoY realised rate increase in 2Q24 after 6 quarters of consecutive decline. Its load factor also grew 2.3pp YoY in the quarter.</li>
</ul>



Orient Overseas International (316 HK) sits on decent yields of 12% for FY24 and 9.6% for FY25. Its net cash (66.2% of the share price) can support such dividends.
Despite the retreat from the recent peak, the spot freight rates are 9.7% and 145% higher than 1H24 and 2H23 respectively, pointing to better 2H24 earnings.
Operationally, it recorded the first YoY realised rate increase in 2Q24 after 6 quarters of consecutive decline. Its load factor also grew 2.3pp YoY in the quarter.


Orient Overseas Intl (316 HK): Don't Overlook Its Yield, Backed by Net Cash

Hong Kong

SITC International Holdings Co., Ltd. is a leading shipping logistics company in the intra-Asia area. It provides integrated transportation and logistics solutions, including container liner shipping, freight forwarding, shipping agency, and warehousing services. The company was founded in 1991 and is headquartered in Hong Kong.

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SITC International (1308 HK)

China Pair Trade Update: Long SITC Intl (1308 HK), Short OOIL (316 HK)

OOIL faces a weaker outlook than SITC, with higher expenses and less attractive metrics. SITC offers a higher dividend yield and a lower...

Osbert Tang, CFA