by winston » Fri Sep 12, 2008 2:09 pm
Not vested. From UOB-Kay Hian:-
Dominates iron ore shipments in the world. China COSCO’s (CCH) iron ore shipping volume amounted to 113.9m tonnes in 2007, or 14.5% of global market shared. The company dominates iron ore shipments in the world.
Sichuan rebuilding. China’s Sichuan rebuilding is estimated to require 37m tonnes of steel in the coming three years. It translates into additional demand of 20m tonnes iron ore per year in 2008-10. We believe this additional demand has a positive impact on CCH’s dry bulk business as it accounts for about 2.3% of the global iron ore seaborne trade in 2008. According to Clarkson’s data, iron ore seaborne trade is expected to grow 8.9% yoy to 945m tonnes in 2009.
( Winston's comments: GS mentioned that steel demand may decrease due to a slowdon in property development in China )
Dry bulk - locked in 76% and 20% of 2008 and 2009 revenue. CCH has locked in 76% and 20% of 2008 and 2009 revenue respectively. For 2008, the average fixed freight rate has increased 40% (about US$57,000) while revenue days rose about 3%. To manage its risk profile and maintain earnings visibility, CCH aims to lock in 50-60% of revenue days for 2009 by end-08. The average fixed freight rate for 2009 is about US$40,000 (largely same as in 2007) given they are longerterm contracts.
Bearish scenario.. Even if we assume the worst scenario that the average BDI drop to 3,500 in 2009, CCH’s net profit is estimated to exceed Rmb11b in 2009 (equivalent to 7.8x 2009 PE).
Valuation is attractive. The stock is trading at 2.7x 2008 PE and 1.8x 2008 EV/EBITDA, with an attractive 9.1% dividend yield for 2008. We regard the stock’s valuation as attractive and believe the share price has factored in all bad news. In our view, this is a good buying opportunity. Our target price is HK$24.50.
It's all about "how much you made when you were right" & "how little you lost when you were wrong"