2015 results in-line with expectation
Revenue fell 17%. Gross loss of US$31mn (vs. 2014’s-US$3.5mn). Net loss attributable to shareholders US$75mn,largely as we had estimated. By segment, dry bulk shippingrecorded a loss of US$72mn (vs. 2014’s -US$26mn), withaverage TCE of US$8,129/day (-19% YoY). The company’sfreight rate was ~14% higher than market. Containershipping earnings grew 40% to US$25mn while freight rate slid6%, mainly thanks to oil price decline.
Trends to watch
Dry bulk shipping market up-cycle likely to begin in2017. Recently BDI rebounded 34% from the Feb. 10 trough of290 mainly because of steel mills replenishing inventory and oreprice fluctuation. Cyclical turnaround is unlikely to come in 2016,as dry bulk shipping capacity growth could accelerate from 2.9%in 2015 to 3.5% in 2016 while seaborne trade growth could beonly 1% in 2016. New shipping capacity is to shrink 62% YoYand supply growth to decelerate to 1.1%.
SSL has strong profitability thanks to its low breakevenpoint. Its breakeven point is around BDI 1,000 thanks to a lowvessel purchasing cost. Each 1,000pt increase in BDI willenhance earnings by US$40mn.
Earnings forecast
Maintain 2016/17 earnings forecasts unchanged.
Valuation and recommendation
At 2016e 0.3x P/B, with large upside potential and possible listcolevel restructuring between Sinotrans & CSC and CMG, wemaintain a BUY rating and TP of HK$2.17 unchanged forthe cheap valuation. Watch for trade opportunities as BDIrebounds in the coming peak season.
Risks
Freight rate misses.