Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

<p>For investors who are not based in Singapore, the mini lockdown in Singapore has started again due to the sudden increase in the number of community cases which previously was relatively under control. Before one thinks that it is a too-harsh of a policy, the rate of the increase of unlinked community cases in Singapore is high. This matters a lot because every Singapore residents need to check in every establishment using either an Identification card, Trace Together app, or token which has proved to be very effective as for months, most of the COVID-19 cases can be traced and therefore allows the government to take the necessary actions. </p>
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<p>This time is different. Alongside the third wave that has hit India and Thailand, Singapore, too, is hit. The Singapore government's response to this is very much like the first lock-down (Circuit Breaker), that they minimize public interactions so that the number of community cases does not increase and provide them with the time to perform contact tracing thoroughly. </p>
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<p>In this report, we identify that <a href="https://www.smartkarma.com/entities/sheng-siong-group-ltd" target="_blank" data-smartkarma-citation="entities:6824:1" rel="noopener">Sheng Siong (SSG SP)</a> , <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> and <a href="https://www.smartkarma.com/entities/singapore-post-ltd" target="_blank" data-smartkarma-citation="entities:150:1" rel="noopener">Singapore Post (SPOST SP)</a>as winners while <a href="https://www.smartkarma.com/entities/comfortdelgro-corp-ltd" target="_blank" data-smartkarma-citation="entities:497:1" rel="noopener">Comfortdelgro Corp (CD SP)</a> and <a href="https://www.smartkarma.com/entities/genting-singapore-ltd" target="_blank" data-smartkarma-citation="entities:439:1" rel="noopener">Genting Singapore (GENS SP)</a>as losers. </p>

For investors who are not based in Singapore, the mini lockdown in Singapore has started again due to the sudden increase in the number of community cases which previously was relatively under control. Before one thinks that it is a too-harsh of a policy, the rate of the increase of unlinked community cases in Singapore is high. This matters a lot because every Singapore residents need to check in every establishment using either an Identification card, Trace Together app, or token which has proved to be very effective as for months, most of the COVID-19 cases can be traced and therefore allows the government to take the necessary actions. 

This time is different. Alongside the third wave that has hit India and Thailand, Singapore, too, is hit. The Singapore government's response to this is very much like the first lock-down (Circuit Breaker), that they minimize public interactions so that the number of community cases does not increase and provide them with the time to perform contact tracing thoroughly. 

In this report, we identify that Sheng Siong (SSG SP) , Sea Ltd (SE US) and Singapore Post (SPOST SP)as winners while Comfortdelgro Corp (CD SP) and Genting Singapore (GENS SP)as losers. 

Singapore Mini Lockdown: Winners and Losers

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<p><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> again posted a good set of result with a 59.8% YoY growth in earnings in FY20 on the back of volume growth, higher freight rate and lower costs. Gross margin expanded a massive 7.2pp YoY in the year to record high level of 26.4%. Fuel and charter costs decreased US$54m YoY but we believe such savings will not be recurrent in FY21.</p><p>In the post-FY20 call, management maintains a positive view for FY21, guiding for good rate increase and volume growth. The key challenges in this year, however, are the surge in fuel and charter costs. We expect its momentum to stay good in 1H21, but will moderate in 2H21 due to a high base. Given the share price's 151% rally since 2020 and 30% YTD, SITC is highly vulnerable to profit-taking, especially as its 12-month P/B of 6.2x is more than 3SD above its historical average.</p>

SITC International (1308 HK) again posted a good set of result with a 59.8% YoY growth in earnings in FY20 on the back of volume growth, higher freight rate and lower costs. Gross margin expanded a massive 7.2pp YoY in the year to record high level of 26.4%. Fuel and charter costs decreased US$54m YoY but we believe such savings will not be recurrent in FY21.In the post-FY20 call, management maintains a positive view for FY21, guiding for good rate increase and volume growth. The key challenges in this year, however, are the surge in fuel and charter costs. We expect its momentum to stay good in 1H21, but will moderate in 2H21 due to a high base. Given the share price's 151% rally since 2020 and 30% YTD, SITC is highly vulnerable to profit-taking, especially as its 12-month P/B of 6.2x is more than 3SD above its historical average.

SITC International (1308 HK): Good Result Priced In, Challenges from Higher Costs

<p>In this Insight, we review our three best trades - <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 Co. Ltd. (H) (1138 HK)</a>, <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> and <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> - in 2020. Based on our calls, these trades generated at least 42%, 37.5% and 81.6%, respectively, in this year, without staying 100% of the time in the market.</p><p>As for 2021, we believe the current levels for <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 Co. Ltd. (H) (1138 HK)</a> and <a href="https://www.smartkarma.com/entities/lonking-holdings-ltd" target="_blank" data-smartkarma-citation="entities:3944:1" rel="noopener">Lonking Holdings (3339 HK)</a> are still attractive in building new positions, while for <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>, we will wait for a pull-back to HK$12.0-13.0 levels before we re-establish our position. </p>

In this Insight, we review our three best trades - Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK), Lonking Holdings (3339 HK) and SITC International (1308 HK) - in 2020. Based on our calls, these trades generated at least 42%, 37.5% and 81.6%, respectively, in this year, without staying 100% of the time in the market.As for 2021, we believe the current levels for Cosco Shipping Energy Transportation Co. Ltd. (H) (1138 HK) and Lonking Holdings (3339 HK) are still attractive in building new positions, while for SITC International (1308 HK), we will wait for a pull-back to HK$12.0-13.0 levels before we re-establish our position. 

Our Three Best Trades in 2020! and How Will We Position for 2021?

<p>With a 51% surge in share price since Oct on the back of the strengths in intra-Asia freight rates and the positive news on signing of the Regional Comprehensive Economic Partnership (RCEP), <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 valuations have entered into historical high levels. Despite a projected high ROE of 29% for FY21, its P/B multiple of 4.65x has already blown through the roof. </p><p>We still think that SITC is a very quality company with solid fundamentals, but the current valuations look to have overweighed the positive factors but turned a blind eye on the risks. These include the sustainability of elevated freight rates, potentially higher charter costs and remote contribution from RCEP; and we believe it is prudent to lighten position in SITC now. Meanwhile, the key upside risks are a better-than-expected volume, declaration of special dividends and further spike in freight rates. </p>

With a 51% surge in share price since Oct on the back of the strengths in intra-Asia freight rates and the positive news on signing of the Regional Comprehensive Economic Partnership (RCEP), SITC International (1308 HK)'s valuations have entered into historical high levels. Despite a projected high ROE of 29% for FY21, its P/B multiple of 4.65x has already blown through the roof. We still think that SITC is a very quality company with solid fundamentals, but the current valuations look to have overweighed the positive factors but turned a blind eye on the risks. These include the sustainability of elevated freight rates, potentially higher charter costs and remote contribution from RCEP; and we believe it is prudent to lighten position in SITC now. Meanwhile, the key upside risks are a better-than-expected volume, declaration of special dividends and further spike in freight rates. 

SITC International (1308 HK): Well, a Very Quality Company but Too Much Too Fast

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<p><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 operating statistics showed that 3Q20 achieved the highest quarterly revenue and volume growth since 1Q19, and we believe this was built on solid cargo demand and its niche presence in the booming intra-Asia market. While average freight rates came down by 6.3% in 3Q20 and 3% in 9M20, this is more than offset by the 36.5% decline in average bunker price YTD, and should lead to good margin expansion in this year.</p>
<p>The strong 3Q20 operating data suggested that SITC is on track to reach a record profit in FY20. Even better, we expect ROE for the next two years to stay at levels of over 25% while maintaining a net cash position. Despite having rallied by 41.5% YTD, we continue to like its quality management, strong intra-Asia franchise, solid financial position and willingness to share success with shareholders (average dividend payout ratio of 82% in the last four years). </p>
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SITC International (1308 HK)'s operating statistics showed that 3Q20 achieved the highest quarterly revenue and volume growth since 1Q19, and we believe this was built on solid cargo demand and its niche presence in the booming intra-Asia market. While average freight rates came down by 6.3% in 3Q20 and 3% in 9M20, this is more than offset by the 36.5% decline in average bunker price YTD, and should lead to good margin expansion in this year.
The strong 3Q20 operating data suggested that SITC is on track to reach a record profit in FY20. Even better, we expect ROE for the next two years to stay at levels of over 25% while maintaining a net cash position. Despite having rallied by 41.5% YTD, we continue to like its quality management, strong intra-Asia franchise, solid financial position and willingness to share success with shareholders (average dividend payout ratio of 82% in the last four years). 


SITC International (1308 HK): Impressive 3Q20 to Support a Record Year in FY20

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)

Singapore Mini Lockdown: Winners and Losers

In this report, we identify that Sheng Siong (SSG SP) , Sea Ltd (SE US) and Singapore Post (SPOST SP)as winners while Comfortdelgro Corp (CD SP)...

Henry Soediarko