HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<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 positive profit alert beat the FY24 forecast by 12%. It also suggests an acceleration in growth to 1.9-2.1x in 2H24, from +13% in 1H24. </li>
<li>The muted share price performance reflects concerns about an influx of capacity, intra-Asia demand outlook, and freight rate prospects. We refute such worries.</li>
<li>It stands on an attractive dividend yield of 11.1% for FY24. Even under conservative earnings forecasts, its 8.1% and 6.6% yields for FY25 and FY26 are appealing.</li>
</ul>



SITC International (1308 HK)'s positive profit alert beat the FY24 forecast by 12%. It also suggests an acceleration in growth to 1.9-2.1x in 2H24, from +13% in 1H24. 
The muted share price performance reflects concerns about an influx of capacity, intra-Asia demand outlook, and freight rate prospects. We refute such worries.
It stands on an attractive dividend yield of 11.1% for FY24. Even under conservative earnings forecasts, its 8.1% and 6.6% yields for FY25 and FY26 are appealing.


SITC International (1308 HK): Beating Expectations Again

<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>The 72.5% decline in <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 FY23 earnings is disappointing but should already reflected in the share price given the profit warning. Instead, this may be the trough.  </li>
<li>Spot freight rates for key intra-Asia routes have already recovered since 3Q23, with the YTD level higher than the 2H23 average. The 1H24 result may show a sequential rebound.</li>
<li>Even assuming flat YoY earnings in FY24, it still sits on a 9% dividend yield. The projected ROE of over 24% and net cash position mean 1.6-1.7x P/B undemanding.</li>
</ul>


The 72.5% decline in SITC International (1308 HK)'s FY23 earnings is disappointing but should already reflected in the share price given the profit warning. Instead, this may be the trough.  
Spot freight rates for key intra-Asia routes have already recovered since 3Q23, with the YTD level higher than the 2H23 average. The 1H24 result may show a sequential rebound.
Even assuming flat YoY earnings in FY24, it still sits on a 9% dividend yield. The projected ROE of over 24% and net cash position mean 1.6-1.7x P/B undemanding.


SITC International (1308 HK): Bidding Farewell to the Trough

<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 management guided for a promising outlook for 2H24, with strong load performance in Jul-Aug, and better long-term contract rates YoY.  </li>
<li>Gross margin expanded 4.5pp in 1H24 despite a 5.3% drop in average freight rate, thanks to good cost control with lower chartered-in costs and more self-owned vessels.</li>
<li>Net cash increased 195% from end-FY23, and we are confident that its 70% payout ratio can be maintained. Its P/B is still below the 5-year average.</li>
</ul>



SITC International (1308 HK)'s management guided for a promising outlook for 2H24, with strong load performance in Jul-Aug, and better long-term contract rates YoY.  
Gross margin expanded 4.5pp in 1H24 despite a 5.3% drop in average freight rate, thanks to good cost control with lower chartered-in costs and more self-owned vessels.
Net cash increased 195% from end-FY23, and we are confident that its 70% payout ratio can be maintained. Its P/B is still below the 5-year average.


SITC International (1308 HK): Advancing Amid the Challenging Time

Orient Overseas International / Equity Bottom-Up

<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?

Hong Kong

SITC International Holdings Company Ltd. offers marine shipping services.  The Company offers container liner shipping, freight forwarding, customs clearance, shipping agency, and ship brokerage services.  SITC operates in Asia.

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SITC International (1308 HK)