Despite tough operating environment, 2H15 profit came in betterthan expectation thanks to effective cost control and yieldmanagement (liner EBIT margin reached 5%)
2016 outlook remains cautious; freight rate unlikely to rebound inthe near term. But expect better supply/demand balance in 2016
Trading at 0.5x FY16E P/B, 21-30% discount to its peers, the stockhas limited downside. TP at HK$43.94 based on 0.7x FY16E P/B
Remained profitable in 2H15, yield management helped
OOIL’s 2H15 net profit fell to US$45 mn (down 50% YoY and 81% HoH)due to tough operating environment. Freight rate fell substantially by15.4% YoY or 10% HoH to US$888 per TEU in 2H15, while trade volumewas only up 1.8% YoY or 3.1% HoH. The weak sentiment partially offsetthe positives of lower bunker costs (down 47% YoY and 21% HoH during2H15). It is encouraging to see OOIL achieved an EBIT margin of 5% inFY15 for its liner business, despite a turbulent year thanks to its excellentyield management and effective cost control. The full-year profit onceagain demonstrates OOIL’s ability to outperform its peers during industrydownturns. OOIL’s full-year load factor dropped 4.4% due to weakdemand.
Maintain BUY on attractive valuations and intactcompany fundamentals
We revised up FY16E/17E net profit by 16%/13% to reflect the lowerthan-expected operating costs and its better management. Managementis cautious about 2016 outlook, given macroeconomic uncertainties andcontinuous freight rates weakness. Our new forecasts represent 4.5%YoY /3.2% YoY net profit growth in FY16E/17E. We still believe OOIL isable to deliver better earnings than its peers, which will be supported byits effective management. We believe the stock is undervalued at thecurrent level (0.5x FY16E P/B, 20% below its historical average valuation)Our TP of HK$43.94 implies 0.7x FY16E P/B. With current valuation at21%-30% discount to its peers and its own historical average, we believethe current valuation is attractive.