News
Before market open on Aug 10, Orient Overseas Int’l (OOIL) reported firsthalf 2015 results where its interim net profit came at US$238.6mn (+32%year-on-year), representing 77% of our full year 2015 forecasts. An interimdividend of HK$0.749 per share was declared (up from HK$0.585 per sharelast year). Gearing ratio remained healthy at 36% net debt to equity by end-June 2015 (vs. Asia peers average of 90%, 2015E).
Analysis
Strong liner EBIT margin outperformance vs. peers: Its liner andlogistics segment (OOCL, OOCL Logistics) delivered c.7% in EBIT margin in1H 2015, vs. 4.5% in 1H 2014 and exceeded our expectations of 5%. Webelieve OOCL’s strong margin outperformance vs. its Asia peers (whichhave reported -2% to 6% EBIT margins so far) was a testament to itsfavorable balanced route exposure, yield management, and lean coststructure. OOCL’s bunker costs fell 38% year-on-year, helped by loweraverage bunker price of US$352/ton in 1H 2015 (from US$595/ton).
Hui Xian REIT distribution in species boosted earnings further: Insteadof a once-in-two-years dividend in specie distribution from Hui XianHoldings (in 2012, 2014, and our expectation of 2016E), Hui Xian Holdingshave opted for yearly dividend in species from 2015. OOIL bookedUS$24.7mn gains from the distribution for 1H15 (vs. US$32.3mn in 1H14).Management is cautious for the second half 2015, but expectsfavorable supply-demand in 2016: In its outlook statement, managementexpects rate pressure in the second half of 2015 due to supply-demandimbalance. However, it sees relatively limited scheduled new shipdeliveries for the industry for 2016 and expect a more favorable supplydemandbalance in 2016, which could lead to a more positive operatingenvironment next year.
Implications
Our Buy rating (on CL), target price, and earnings estimates remainunchanged.