Sinotrans Shipping's 1H16 revenue declined 20.5% YoY to US$385.8million, while net loss was US$40.2 million. The performance was mainlydue to weak 1H16 global bulk shipping, while BDI decreased 21.9% YoY in1H16. The container sector contributed an operating profit of US$9.8 million,of which, its underlying China-Japan Route performed steadily.
The Company continued to upgrade and optimize its fleet structureduring 1H16. Through acceleration of vessel scrappings, Sinotrans Shippingreduced its average fleet age to 6 years (down 1.9 years), implying loweroperation stress in the future. Also, by shifting into the LNG shippingbusiness, the Company could diversify its revenue structure while seizingpositive effects from the increasing global demand for natural gas.
Dry bulk shipping prospect was uncertain yet could improve. AverageBDI in 1H16 declined to 485.3. However, the oversupply condition of dry bulkshipping is improving, we expect both the dry bulk shipping rate and tradevolume to fluctuate in 2H16, but may gradually recover in 1Q17.
Merger between parent company Sinotrans & CSC and China MerchantsGroup proceeded smoothly. The merger could fuel more developmentpotential for Sinotrans Shipping's relevant operations. Considering theimproving market estimates and operation reforms (entering LNG business),we upgrade investment rating to 'Accumulate', and set TP at HK$1.42. Our TPrepresents 0.4x FY16 PBR.