Thursday, March 29, 2007
Results Brief: China COSCO (1919)
The last few posts were a little long and complicated which wasn't expected, nor was it my usual style. That's why I usually hate reading into too much details, because it only draws you to more calculation and guesswork but not necessarily accuracy. And it tends to masks you from seeing the big picture too. I'll try to go back to being brief and simple for the coming ones.
Below is breakdown of the two halves' figures of China COSCO.
Port 1H: $0.54b; 2H: $0.61b; Total: $1.15b
Shipping 1H: $0.44b; 2H: $0.44b; Total: $0.88b
The shipping side showed no improvement in the 2nd half despite cheaper fuel and supposedly higher freight. As OOIL management correctly put it earlier, too many lower-priced contracts locked in the 1st half when everyone was too eager to find business for the new vessels had a lingering effect on the 2nd half. Of course you won't find this mentioned by the COSCO management.
In my first analysis of the shipliners in Dec last year, my work was based on the principal assumption that all three shipliners with roughly equal-sized fleet and similar routes should demand similar valuation. That's how I came up with the pick on China COSCO and OOIL at that time. Three months later and with a bit of luck the valuation gap is now pretty much filled. But when I come to think of it again after seeing these results, I think execution skills should factor in and OOIL is clearly superior in this regard.
After deducting the market value of COSCO Pacific*, the shipping division is worth $23b, which is about what I gave to the OOIL shipping division, 8x p/e of a $3b earnings. I'd be really hesitate to give China COSCO the same valuation, when it only made 30% of OOIL's earnings last year. Maybe half of it is more appropriate and 2/3 will be very generous. So I'd say the current price is fair at best, you may add it's a little rich, but that's because all eyes are now on the injection of the parent company's dry bulk fleet, which is the largest in the world, and the A-share listing, and China COSCO is the only ticket to the show so this premium won't go away anytime soon. I hope it'll be a good show.
Don't buy at this price unless you are a speculator, a good one, but hold on to your shares if you have it.
DISCLOSURE: I hold 1919 at time of writing.
* i'm not not worried about the ports since its business nature is utility-like and defensive, and the current price isn't stretched and actually shows restraint compared to a lot of other china shares.
Below is breakdown of the two halves' figures of China COSCO.
Port 1H: $0.54b; 2H: $0.61b; Total: $1.15b
Shipping 1H: $0.44b; 2H: $0.44b; Total: $0.88b
The shipping side showed no improvement in the 2nd half despite cheaper fuel and supposedly higher freight. As OOIL management correctly put it earlier, too many lower-priced contracts locked in the 1st half when everyone was too eager to find business for the new vessels had a lingering effect on the 2nd half. Of course you won't find this mentioned by the COSCO management.
In my first analysis of the shipliners in Dec last year, my work was based on the principal assumption that all three shipliners with roughly equal-sized fleet and similar routes should demand similar valuation. That's how I came up with the pick on China COSCO and OOIL at that time. Three months later and with a bit of luck the valuation gap is now pretty much filled. But when I come to think of it again after seeing these results, I think execution skills should factor in and OOIL is clearly superior in this regard.
After deducting the market value of COSCO Pacific*, the shipping division is worth $23b, which is about what I gave to the OOIL shipping division, 8x p/e of a $3b earnings. I'd be really hesitate to give China COSCO the same valuation, when it only made 30% of OOIL's earnings last year. Maybe half of it is more appropriate and 2/3 will be very generous. So I'd say the current price is fair at best, you may add it's a little rich, but that's because all eyes are now on the injection of the parent company's dry bulk fleet, which is the largest in the world, and the A-share listing, and China COSCO is the only ticket to the show so this premium won't go away anytime soon. I hope it'll be a good show.
Don't buy at this price unless you are a speculator, a good one, but hold on to your shares if you have it.
DISCLOSURE: I hold 1919 at time of writing.
* i'm not not worried about the ports since its business nature is utility-like and defensive, and the current price isn't stretched and actually shows restraint compared to a lot of other china shares.
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