Despite 4Q15 volume grew 2% YoY, OOIL’s revenue fell 16% YoYdue to collapse in freight rates (-17% YoY) on overcapacity
We expect another 10% fall in average bunker price in FY16.Coupled with lower freight rates and small volume growth, weexpect small increase in earnings next year
Trading at 0.5x FY16E P/B or 21-30% discount to its peers, stockhas limited downside. TP at HK$43.67 based on 0.7x FY16E P/B
Likely break-even in 2H15. Rates unlikely to rebound
OOIL’s 4Q15 volume recorded 2.0% YoY growth to 1,388mn TEU asloadable capacity was up 6.0% but load factor declined 2.8%. Blendedfreight rates were down 17.3% in 4Q15 due to the imbalance betweensupply and demand. As a result, 4Q15 revenue declined 15.6% YoY, or11.4% QoQ. For FY15, OOIL’s revenue was down 10.1% YoY while totalvolume dropped 0.2% merely, and its average freight rate dropped 10%YoY. In addition, its average load factor decreased 4.4% YoY.
Lower bunker fuel cost likely to save the day in 2016E
Asia-Europe market recorded 35.6%/24.7% YoY plunges in 4Q15/FY15revenue. Asia-Europe freight rates were still facing downward pressure.According to Alphaliner, the orders of ultra large container ships (>18,000TEU) continued to rise in 2015. Not only AE freight rates recordedsignificant decline, TP, TA and Intra-Asia freight rate also dropped 5.4%,0.2% and 11.9% in FY15, receptively. Due to severe overcapacity, idlecontainer fleets have surged in 2H15 and reached a five-year high, witharound 1.3 mn TEU of capacity unemployed. Some carriers are removingcapacities in main trade lanes to cope with the decreasing demand.So far we do not see any signal for freight rates turnaround in the nearterm. We assume the latter to continue declining in 2016. That said, weexpect the lower average 2016E bunker prices to alleviate the financialimpacts of falling freight rates.