Commendable performance in difficult operating conditions
OOIL reported a net profit of US$181.3m in 1H 2014, compared to a net loss of US$15.3m a year ago and our conservative full year forecast of US$63m. Part of profits came from non-operating gains, namely US$41.4m investment income from its stake in Hui Xian REIT and Hui Xian Holdings, and a US$9.7m net fair value gain from its investment in Wall Stret Plaza. Nevertheless, OOIL's core net profit of US$130.2m was a performance that appears to be far better than peer NOL, which lost US$152m in 1H 2014. OOIL also declared a rewarding US 7.5 cents per share interim dividend, compared to nil last year. Management commented that it is likely the industry performed better this year compared to last year but newbuilding orderbook will cap further improvement.
Management's outlook : cautious optimism
While continuing to warn of oversupply in the industry over coming years, management did say that the recovery in the global economy should see a more positive operating environment for the container shipping industry in 2H 2014. OOIL's volume in 1H 2014 was up 10.1% y/y but average revenue/TEU was down 5.3% y/y.
We have a Buy recommendation because at 0.7x 2014E P/B, it is inexpensive
This set of results affirms our view of OOIL being one of the best managed liners in the industry. Our full year 2014E net profit forecast now looks conservative. However, we do continue to have a view that the container shipping industry will face a difficult operating period in coming months because of oncoming supply. In particular, we worry about the volatility of rates as discipline does not appear to have lasted for long periods of time this year.