Container shipping rates finally tick up but industry oversupply could return in 2018

23 October 2017

Global – The global container shipping sector’s spot market freight rate index finally strengthened by 3% w/w after declining for 14 weeks. With the monthly newbuild vessel deliveries trending lower q/q in 4Q17 and the global trade demand remaining strong, we see limited downside risk to freight rates near term. We forecast the global container shipping demand to grow 5.0% y/y, ahead of our projected capacity growth of 3.9% y/y in 2017. However, 2018 could be a challenge again for the global container shipping industry as it will have to tackle more aggressive capacity growth.

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China’s Big 3 Airlines to report weaker 3Q17 results but benign 4Q17 capacity to lift yields

20 October 2017

China’s Big 3 Airlines just reported their 9M17 operating statistics, reflecting more moderate passenger traffic growth of 10% from 11% in 1H17. This was flagged in our previous report on 18 July 2017. As China’s Big 3 Airlines’ share prices have corrected 19% since July 2017, weakness in the upcoming 3Q17 results are already largely priced in. We now turn our focus on analysing the Chinese airlines’ 4Q17 capacity growth & their implications on the airlines’ yields and profitability.

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Research Report: Chinese Airports (694:HK, 600009:CH) may see near-term price correction

19 October 2017

China – Following the Chinese airports’ share price rally of 40% ytd, we see a rising risk of share price correction near term. Based on our analysis of the airlines’ planned flights schedules for 4Q17, the total number of flights and seat capacity handled at Shanghai International Airport (600009:CH) will decline in 4Q17 while Beijing Capital International Airport (694:HK) will see limited capacity growth.

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Research Report: Pacific Basin Shipping (2343:HK) highly leveraged to Handysize recovery

16 October 2017

Hong Kong – We initiate coverage on Pacific Basin Shipping (2343:HK) with Outperform rating and price target of HK$2.10. We also analyse the updates from Pacific Basin Shipping’s 3Q17 briefing where CEO Mats Berglund discussed Pacific Basin Shipping’s 3Q17 operations.

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Potential Emirates & Etihad alliance will form the world’s largest airline

12 October 2017

Middle East – Emirates’ President Tim Clark commented yesterday that Emirates, following the establishment of its extensive partnership with flydubai, is open to cooperating with Etihad. We analyse what an alliance of these two major Gulf carriers could potentially look like. Combining Dubai-based Emirates and Abu Dhabi-based Etihad will form the world’s largest passenger and cargo airline …..

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Singapore Airlines can unlock value by merging SIA Engineering w/ ST Aerospace to form MRO Powerhouse

11 October 2017

Global – Singapore Airlines can unlock value significantly via a partial or complete divestment of SIA Engineering that would yield Singapore Airlines’ shareholders a dividend in specie of S$0.81 to S$2.34 per SIA share. While highly speculative at this juncture, we believe that a merger between SIA Engineering and ST Engineering (STE:SP)’s Aerospace division (ST Aerospace) will be highly beneficial to all parties …

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Key Takeaways from AirAsia (AIRA:MK) Investor Day 2017

09 October 2017

Malaysia – We attended AirAsia (AIRA:MK)’s inaugural Global Investor Day where we caught up with AirAsia Group’s CEO, Tony Fernandes as well as the CEOs of AirAsia’s associate airlines. Here are our key takeaways on what was featured as well as our verdicts on what is achievable or overambitious:

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SIA Engineering (SIE:SP) share price drop triggered by block trade, not fundamentals

04 October 2017

Singapore – SIA Engineering (SIE:SP)’s share price fell 5% to S$3.28 this morning. We believe this was mainly driven by a substantial block trade amounting to a 3.5% stake in SIA Engineering and not fundamentals. Singapore Airlines Limited just announced that it has not sold any SIA Engineering shares. These shares were from an institutional investor. The MRO sector outlook is still challenging near term but it is not getting materially worse. We remain bullish on SIA Engineering’s longer term prospects. 

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Air France AF66 engine explosion to drive checks on A380s powered by GP7200 engines

02 October 2017

Global – Air France AF66’s uncontained engine explosion will drive engine checks on Airbus A380s powered by the GP7200 engines. This is negative for manufacturer Engine Alliance, a JV between General Electric and Pratt & Whitney. Detailed GP7200 engine checks will be especially disruptive for Emirates which operates by far the the world’s largest A380 fleet. As many as 90 Emirates A380s are powered by the GP7200 engines. The GP7200-powered Airbus A380s account for 35% of Emirates’ total aircraft fleet and 45% of Emirates’ total seat capacity …

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Rising oil price impact analysis on all 33 listed airline equities in the Asia Pacific

28 September 2017

Asia Pacific – Jet fuel prices have increased 24% y/y ytd, negatively impacting the airlines in the Asia Pacific as fuel cost is their single largest cost component, accounting for 30% of their total operating cost on average. We analyse all 33 listed airline equities in the Asia Pacific to assess their varying level of fuel hedging as well as their earnings sensitivity and share price correlation to jet fuel price movements. 

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AirAsia (China) adds partners but lack of Henan govt stake raises risk of other entrants

26 September 2017

China – AirAsia Bhd (AIRA:MK) announced new partners for its proposed Zhengzhou-based LCC JV, AirAsia (China). The addition of Plato Capital Limited (PLC:SP) will increase AirAsia’s management influence in this joint venture airline as AirAsia Group Founders each have a 6.33% indirect stake in Plato Capital. AirAsia will still have a working relationship with the Henan Government Working Group under the original MoU signed in May 2017 but the absence of a direct equity stake  by the Henan provincial government …

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BDI hits 3-year high, further gains depend on China & Japan’s restocking given benign supply growth

13 September 2017

Global – The Baltic Dry Index rose 8% w/w to 1335, a level not seen since November 2014. Although this is still a far cry from its all-time high of nearly 12,000 back in 2008, the BDI’s return to its historical 10-year average level is encouraging. Importantly, the global dry bulk shipping capacity has risen 3.0% ytd, trending slightly below our forecast and close to our global demand growth projection of 4.3% this year. If China and Japan’s major bulk commodity restocking trends continues, it could sustain the current freight rate recovery.

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East-West container shipping rates fall due to rising supply & China factory closures

11 September 2017

Global – The back-to-school peak shipping season has failed to lift spot market freight rates so far notwithstanding the carriers’ rate hike attempts. Asia-Europe and Transpacific spot freight rates have weakened more significantly in the past week. In comparison, the Intra-Asia Pacific spot rates managed to hold up w/w and are still significantly higher y/y. This could drive investors to switch to carriers with larger Intra-Asia exposure and avoid carriers with substantial Asia-Europe/North America exposure.

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Record year for global air cargo market to benefit Asian airlines and MRO players

06 September 2017

Global – We expect the global air cargo market to remain strong. Asia Pacific carriers w/ the largest cargo exposure are China Airlines, Korean Air, Cathay Pacific and EVA Airways. Supply growth will be a moderate 3-4% in the next 5 years. The stronger market, coupled w/ low fuel prices, may revive passenger-to-freighter conversions which will benefit MRO players ST Engineering, SIA Engineering and HAECO.

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CMA CGM mega ship orders may drive market share race & Asian shipbuilder equities

05 September 2017

Global – CMA CGM is close to confirming a 9 mega ships order that would raise its global market share to 12% and the OCEAN Alliance’s combined market share to 28%. This is rather Déjà Vu and could spur the global container shipping industry giants to buy ships and race for market share again. Investors may do well to start looking at the Asian shipbuilder stocks such as Daewoo DSME (042660:KS), Hyundai Heavy HHI (009540:KS) and Samsung Heavy SHI (010140:KS). 

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Airline Industry impact analysis from North Korea’s thermonuclear test and geopolitical tensions

04 September 2017

Asia Pacific – North Korea’s thermonuclear test on Sunday has heightened geopolitical tensions in the Korean Peninsula and the broader Asia Pacific region. This escalating tensions could drive travellers to postpone or cancel their trips to South Korea which is a popular tourist destination. This will hurt Korean Air, Asiana as well as Southeast Asian airlines AirAsia X, Vietnam Airlines and VietJet the most.

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Air China’s lagging share price to recover as 1H 2017 core operating profit margin beats peers

31 August 2017

China – Based on the Big 3 Chinese carriers’ 1H 2017 results, Air China (753:HK) has once again delivered the strongest core operating profit margin, followed by China Eastern Airlines (670:HK) and China Southern Airlines (1055:HK). Air China also suffered the smallest decline in core operating margins y/y in 1H 2017. This could drive investors to revisit Air China as it has been the second worst performing stock among the Chinese airlines in the past 2 months.

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AirAsia 2Q17 core profits stronger than headline. Proposed reorganisation is positive step forward

29 August 2017

Malaysia – AirAsia (AIRA:MK)’s 53% y/y decline in net profit to M$147m in 2Q17 (on a pro-forma basis) masks the marked improvement in its core operating profit. The Proposed Internal Reorganisation of AirAsia Group and backdoor listing of Indonesia AirAsia are positive developments. Here are our key takeaways:

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1H 2017 Earnings Preview: Air China (753:HK), China Eastern (670:HK), China Southern (1055:HK)

24 August 2017

China – We expect the Chinese airlines to report weak 1H 2017 financial results. Our full year 2017 EPS forecasts are 30% below consensus. The market is likely to revise down earnings forecasts after their results announcements next week. As the Chinese airline stocks have already underperformed since end June 2017 and valuations are undemanding, the weak 1H 2017 financial results may not necessarily …

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Lagging small-vessel rates may push Handy stock investors to Japanese Shipping Giants

22 August 2017

Global -The recent surge in Capesize and Panamax spot freight rates coupled with weaker chartering activity in the Handymax and Handysize vessel segments could drive some profit-taking in Handy operators Pacific Basin Shipping (2343:HK), First Steamship (2601:TT) and Precious Shipping (PSL:TB) whose share prices have already risen 48%, 37% and 29% ytd in favour of the Japanese shipping lines …

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Cathay Pacific (293:HK) 1H17 loss hits HK$2.05B: Potential Air China takeover could still drive rally

16 August 2017

Hong Kong – Cathay Pacific reported a net loss of HK$2.05B , its largest 1H loss in history. We expect Cathay Pacific to remain loss-making in 2H17 but turn around from 2018. We recently upgraded Cathay Pacific from Underperform to Outperform as we believe much of Cathay’s weak earnings outlook is already priced in and its recovery from next year and a potential takeover by Air China could drive its valuations higher.

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Research Report: EVA Airways (2618:TT) & China Airlines (2610:TT) valuations to remain rangebound until China-Taiwan relations thaw

15 August 2017

Taiwan – We initiate coverage of EVA Airways (2618:TT) and China Airlines (2610:TT) with In-line ratings and fair values of NT$15.80 and NT$10.50 respectively. The Taiwanese airline stocks will remain fairly range-bound until the lucrative China-Taiwan traffic recovers.

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ST Engineering (STE:SP) 2Q17 weakened by Marine but Orderbook hits all-time high

14 August 2017

Singapore – ST Engineering’s 2Q17 headline results were weaker than expected, hurt by additional provisions made by the Marine segment. This has led management to revise down its earnings guidance, expecting Group pre-tax profits to be comparable to 2016. On a more positive note, the Group orderbook hit a record high of S$13.5B which will support longer term growth …..

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Orient Overseas (316:HK)’s long-haul exposure rose, unit cost ex-fuel fell, stronger 2H17 outlook

08 August 2017

Hong Kong – OOIL turned profitable in 1H17, mainly driven by stronger long-haul shipping volume & the rebound in Asia-Europe and Intra-Asia/Australasia freight rates, lower unit cost ex-fuel and property & investment-related gains. OOIL’s share price has risen 66% since we initiated coverage with an Outperform rating on 14 March 2017. We expect most OOIL’s public shareholders to accept COSCO & SIPG’s Offer of HK$78.67 cash per OOIL share.

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Research Report: Japan Airlines (9201:JP) offers more upside than ANA (9202:JP)

03 August 2017

Japan – We initiate coverage of ANA (9202:JP) and JAL (9201:JP) with Outperform ratings and Fair Values of JPY450 and JPY4222 respectively. JAL has historically traded at a 35% valuation premium to ANA in the past 5 years. However, this gap has closed recently, mainly driven by ANA’s improving profitability. We expect both carriers’ operating outlook to be broadly favourable with fuel price and forex being the key risks.

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China Eastern (670:HK), Air France, Delta, Virgin equity partnership negative for Air China (753:HK)

31 July 2017

Global – China Eastern has entered into a Marketing Agreement with Air France-KLM that will boost its network reach and traffic feed on China-Europe routes following CEA’s parentco’s planned 10% investment in AFK which is acquiring a 31% stake in Virgin Atlantic Airways. This new development is negative for Air China which currently has a huge market share lead in this route region.

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Singapore Airlines (SIA:SP) 1QFY18 core profit improved markedly, stronger sales growth ahead

28 July 2017

Singapore – Singapore Airlines (SIA:SP) reported a net profit of S$235m for 1QFY18 (April-June 2017), down 9% y/y. However, stripping out one-off items, core profit actually improved markedly. Here are our key takeaways.

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Cathay Pacific (293:HK) upgraded to Outperform: Takeover by Air China (753:HK) likely

27 July 2017

Asia Pacific – We revised our Cathay Pacific earnings forecasts and fair value to HK$14 and consequently upgraded our rating from Underperform to Outperform. Much of Cathay Pacific’s weak earnings outlook is already priced in and its recovery next year and potential M&A interest from Air China could lift its share price higher.

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SIA Engineering (SIE:SP) 1QFY18 results slightly weaker, recent milestones will drive future growth

26 July 2017

SIA Engineering’s 5% y/y decline in recurring profit in 1QFY18 was slightly below our forecast. The key disappointment SAESL while ESA was the bright spot. Margin pressure remains for SIA Engineering’s core business. Although the MRO sector outlook is challenging near term, we remain bullish on SIA Engineering’s longer term prospects. Several game-changing business developments achieved during 1QFY18 will significantly enhance its competitive advantage and provide new long-term earnings growth drivers.

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Shipping Equities gain from structurally improving sector outlook

25 July 2017

Global – Never in the last 30 years history of shipping has the global vessel orderbook-to-fleet ratio been so low at 10%. This has reduced the risk of protracted oversupply in most vessel segments in the next 2 to 3 years unless there is a resurgence of substantial newbuild vessel orders. The equity markets have been quick to price this in but improving earnings could drive the Asian shipping stocks higher, particularly from next year.

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Rising South America-Asia trade lifts bulk shipping ton-mile demand and freight rates

20 July 2017

Global – We track the latest bulk shipping demand and freight rates trends, checking back against our demand-supply growth forecasts. The recent uptick in the Capesize and Panamax rates is mainly driven by stronger China and Japan’s shipping demand. The rising share of ships chartered to carry freight from South America to Asia will lift ton-mile demand …..

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Chinese airlines: 3Q17 capacity growth risks hurting yields after favourable 1H17

18 July 2017

China – The major Chinese airlines just reported their 1H17 operating statistics, reflecting robust traffic growth of 11%. This is in line with our expectations and supports fairly favourable financial results in late August. A new concern we have is that domestic capacity growth is accelerating in 3Q17 which could hurt passenger yields if not matched by demand …..

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Global Containership Orderbook-to-Fleet Hits 20-year Low

17 July 2017

Global – The global container shipping sector has been plagued by oversupply, with capacity growing at 10% pa in the past 20 years. What’s positive is that the industry has been exercising significant supply restraint ytd. The global containership fleet capacity grew only 1% y/y ytd to 20m TEUs and orderbook-to-fleet ratio has fallen to 14%.

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Hard to break Maersk dominance but COSCO (1919:HK) may soon become world’s 2nd largest

13 July 2017

Global – Although Asia is the dominant factory of the world, the Asian container shipping companies’ individual market shares of the global trade have historically been small and shrank further after CMA CGM’s takeover of NOL & Hanjin Shipping’s bankruptcy. But COSCO Shipping is reshaping this and could soon become the world’s second largest carrier.

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Sweeter deal for acquirers COSCO (1919:HK) & SIPG than for target OOIL (316:HK)

10 July 2017

Asia Pacific – The HK$78.67 offer per share is a sweeter deal for acquirers COSCO SHIPPING Holdings (1919:HK) and Shanghai International Port Group than for target company Orient Overseas International Limited OOIL (316:HK). Nevertheless, we expect most of OOIL’s public shareholders to accept the Offer …..

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Stellar Absolute and Relative Stock Returns Since We Initiated Our Research Coverage

03 July 2017

Asia Pacific – Time flies, Crucial Perspective is now 4 months old! We take this opportunity to review the performance of our stock ratings so far. In summary, the market-cap weighted coverage portfolio returns based on our stock ratings have yielded an absolute return of 12% so far.

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Hong Kong Airport & Cathay Pacific: Low growth trajectory but air cargo, 3RS bring hope

29 June 2017

HKIA and Cathay Pacific could be stuck in a low growth trajectory with more traffic increasingly bypassing HKIA as the Chinese carriers launch more direct flights between mainland China and the rest of the world, diminishing the importance of HKIA and Cathay Pacific’s as the gateway airport and airline of China.

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Analysing China Southern (1055:HK) share placement: In line with Crucial Perspective predictions

28 June 2017

China – As predicted by Crucial Perspective in an earlier report, China Southern Airlines, CSA has just announced plans to issue new A & H shares. CSA H share issue price of HK$6.27 is also in line with Crucial Perspective’s Fair Value of CSA at HK$6.30. We analyse the implications & update our earnings forecasts …

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Panamax demand leading the dry bulk recovery & other BDI updates

26 June 2017

Global – We track the latest shipping demand and freight rate trends in the global dry bulk shipping market. Overall, Japan and China demand is helping to lift vessel chartering demand and spot freight rates, with the recent rebound in the BDI mainly led by the Panamax vessel segment. The Chinese ports’ record high iron ore inventory levels could impede Capesize shipping demand near term unless …..

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Zhengzhou Airport flying high with Henan Cargo Airlines, Cargolux/Emirates partnership and AirAsia China JV

22 June 2017

Global – Zhengzhou, the capital of the land-locked and once impoverished province of Henan, has emerged as an important logistics hub in recent years. The recent establishment of Henan Cargo Airlines and the strategic operational partnership between Emirates SkyCargo and Cargolux Airlines …..

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Orient Overseas (316:HK) – Attractive takeover target but the time might not yet be ripe

21 June 2017

Hong Kong – Orient Overseas (International) Ltd, OOIL (316:HK)’s share price has shot up 9% in the past two days, likely driven by market speculation that OOIL (316:HK) could be a potential takeover target by COSCO Shipping (1919:HK). While OOIL (316:HK) is an attractive takeover target, the timing might not yet be ripe as there are significant obstacles in the short-term.

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Singapore Technologies Engineering (STE:SP) – Major contract wins at Paris Air Show 2017

20 June 2017

Singapore – Singapore Technologies Engineering (STE:SP)’s ST Aerospace business division has secured major contracts at the start of the 52nd International Paris Air Show 2017: Boeing B787 Aircraft Heavy Maintenance Contract from Air Canada, Airbus A330-300 Passenger-to-Freighter Conversion Contract from DHL Express

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SIA Engineering (SIE:SP) to profit significantly from JV ESA’s A320neo engine MRO facility

20 June 2017

Singapore – We analyse the earnings gains for SIA Engineering: its 49%-owned JV ESA has been selected as a MRO facility for the GTF engines that power the bestselling Airbus A320neo. 5108 A320neo are to be delivered over the next 10 years …

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AirAsia Bhd (AIRA:MK)’s stake in planned China JV likely to be capped at 25%

19 June 2017

China – AirAsia Bhd (AIRA:MK) signed a memorandum of understanding with China Everbright Group and the Henan Government Working Group to establish AirAsia (China), a low-cost carrier to be based in the Henan provincial capital of Zhengzhou.The shareholding of the joint venture, AirAsia (China) has yet to be finalised but we believe that that it will be …..

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Global air cargo traffic & yields trending up but low utilization could persist

15 June 2017

Global – Air cargo traffic grew 11% y/y on international routes and 9% system-wide (including domestic and international routes) in January-April 2017, a marked improvement from the industry’s 4% growth (both international and system-wide) in full year 2016. This is mainly driven by improving US and European consumption demand.

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Robust Transpacific trade is driving shipping demand growth

14 June 2017

The Asia Pacific region’s exports to the United States have risen 5% y/y while US exports to the Asia Pacific region surged 16% y/y in January-April 2017. The strong back-haul US-Asia Pacific trade growth is mainly driven by oil & gas, soybean and grains exports. However, the global tanker shipping rate recovery has generally lagged the dry bulk and container shipping sector this year due to the excess supply.

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Airbus & Boeing exposure to Qatar Airways limited to 4% of total commercial aircraft orderbook

12 June 2017

Global – We assess Qatar Airways’ huge aircraft orderbook and how the ongoing Qatar crisis may impact Airbus and Boeing as Qatar Airways is Airbus and Boeing’s 12th largest commercial aircraft buyer globally. Qatar Airways’ planned aircraft fleet growth is overly aggressive if it suffers from significant traffic decline for a protracted period

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China Outbound Tourism Analysis – Winners and Losers

08 June 2017

Global – The China outbound tourism boom is showing no signs of abating with growth of 8% y/y in 1Q17, an improvement from the 4% growth achieved in full year 2016. We take a closer look at some of the countries and equities that are benefitting the most as well as the others that have missed out on this growth.

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THAAD suspension may convince China to end travel curbs on South Korea

08 June 2017

South Korea – South Korea’s new President, Moon Jae-in has suspended the deployment of the Terminal High Altitude Area Defense (THAAD) system. This may convince China to end its travel curbs on South Korea; Asiana, Korean Air & Spring Airlines will benefit the most in such a scenario.

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Global Shipping: Qatar Crisis to drive ton-mile demand and freight rates up

07 June 2017

Global – Following the Saudi-led alliance’s move to cut off diplomatic & transport links with Qatar, we assess the impact on Qatar & the global shipping industry. This is likely to drive ton-mile demand up. In addition, the vessel re-routing, higher risk premiums and panic stockpiling will push up freight rates on Middle Eastern routes in the near term

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Qatar Airways & global airlines industry impact: Severing of Qatar links by Saudi-led alliance

05 June 2017

Global – Following today’s decision by the Saudi-led alliance (Saudi Arabia, Egypt, Bahrain, United Arab Emirates) to cut off diplomatic and transport links with Qatar, we assess the impact on Qatar Airways and the global civil aviation industry.

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Airlines Social Media Influence 2017 – Social Butterflies or Media Wallflowers?

05 June 2017

We analyse the airline industry’s social media influence based on their presence in Facebook, Instagram, LinkedIn, Twitter and Weibo. Overall, AirAsia, Qatar Airways, Turkish Airlines, Emirates and Etihad exhibit the strongest presence across the various social media platforms.

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AirAsia (AIRA:MK) Initiation Research Report 2017 – Cost Leadership, Extensive Network & Strong Branding

31 May 2017

Malaysia – We initiate coverage on AirAsia (AIRA:MK) with a fair value of M$3.40 and Outperform rating. AirAsia has one of the lowest cost structures globally which is its biggest competitive advantage and positions it well to leverage on Asia’s long-term air traffic growth of 7% per annum

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Improved freight rates & volumes driving the re-rating of major Container Shipping stocks

29 May 2017

Global – Freight rates have improved y/y in all major route regions which is positive for the carriers’ earnings outlook and has driven the re-rating of most container shipping stocks. In particular, the Asia-Europe trade lane has experienced the strongest y/y improvement, partly due to the dismally low base last year.

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Increasing liner market concentration, Hapag-Lloyd UASC merger & lower than expected capacity growth

29 May 2017

Global – The global container shipping industry’s market concentration has increased following the completion of Hapag-Lloyd and United Arab Shipping Company’s merger (UASC) last week. The industry’s capacity growth has so far been lower than expected due to accelerated vessel scrapping which partially offset the tonnage additions from newbuild vessel deliveries.

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AirAsia Berhad (AIRA:MK) – Key Takeaways from 1Q17 Results

25 May 2017

Malaysia – AirAsia just reported a net profit of M$584m in 1Q17, down 22% y/y on a pro-forma basis. Here are our key takeaways: 1Q17 strong headline results were driven by several sizeable one-off items. These included M$214m re-measurement gains from the consolidation of AirAsia Indonesia and AirAsia Philippines (which were previously equity accounted for), M$127m negative goodwill on consolidation

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Analysing the sustainability of the strong Capesize market & other BDI updates

24 May 2017

Global – The Baltic Dry Index (BDI) has fallen 3% w/w to 949 but is still 52% higher y/y due to the dismally low base last year. We saw the sharpest decline in the Panamax Index which fell 11% w/w. In the smaller vessel segments, the Handysize and Supramax indices fell 4% and 3% respectively w/w. In contrast, the Capesize index rose 5% w/w …

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Singapore Technologies Engineering (STE:SP) Initiation Research Report 2017 – Strong orderbook as MRO, Infrastructure & Defense spending increases

23 May 2017

Singapore – We initiate coverage on Singapore Technologies Engineering Limited (STE:SP, ST Engineering) with a fair value of S$4.30 and Outperform rating. Barriers to entry are high in the key segments ST Engineering operates in; and its revenue and earnings volatility have historically been low …..

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Singapore Airlines Limited (SIA:SP) – Key Takeaways from 4QFY17 Results

18 May 2017

Singapore – Singapore Airlines just reported a net loss of S$138m in 4QFY17 (year to March) compared to S$225m net profit in 4QFY16. This cuts its full year FY17 net profit to S$360m, down 55% y/y. Here are our key takeaways: 4QFY17 loss was partly driven by several sizeable one-off items

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SIA Engineering (SIE:SP) Initiation Research Report 2017: Well-positioned to leverage on potential MRO upturn

18 May 2017

Singapore – We initiate coverage on SIA Engineering (SIE:SP, SIAEC) with a fair value of S$4.50 and Outperform rating. The global MRO market demand is expected to remain soft near term for the fifth consecutive year but SIA Engineering’s line maintenance business segment remains lucrative …..

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“Belt and Road” Initiative’s impact on global dry bulk shipping and other BDI updates

11 May 2017

Global – China’s Belt and Road Initiative is expected to boost infrastructure spending in China and in the participating countries, particularly in railroads, oil & gas pipelines, port terminals as well as other infrastructure development projects. Assuming that Belt and Road boosts infrastructure spending by US$200B per annum and 10% of this is spent on steel, this would imply around 44 million tons …..

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Global Container Shipping Highlights: Asia is key driver of trade growth and freight rates up in all major routes

08 May 2017

Global – The global container shipping trade demand has been growing faster than expected, rising 7% y/y year-to-date. Similarly, the global air cargo market also mirrors this trend, growing 10% y/y ytd. In the container shipping sector, this is mainly driven by buoyant trade demand on Intra-Asia routes as well as back-haul shipping volume into Asia.

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Dry Bulk Shipping and BDI Analytics – Week 18 of 2017

04 May 2017

Global – We have just sailed past the one-third mark of year 2017; it is time to take stock of what has changed on the supply side in the global dry bulk shipping sector and provide an update on the industry’s latest trends. In summary, on the supply side, the global dry bulk shipping sector capacity growth ytd is trending in line with our full year forecast of 4.9%. On the demand side, ship chartering activity has been buoyant, with a surge in ships being fixed in the spot market in all vessel segments w/w and 26% higher y/y

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Update (21 April 2017): US, UK electronics ban on Middle-East flights could benefit airlines in Asia

21 April 2017

Global – In an earlier Crucial Perspective report (24 March 2017), we highlighted the impending impact of US, UK electronics ban on Middle-East flights and how that could benefit airlines in Asia. This impact is now underway; On 19 April 2017, Emirates commented that it has seen a “significant deterioration in the booking profiles on all the airline’s United States routes across all travel segments” and announced reductions in its flight schedules

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1Q 2017 Earnings Preview: Chinese Airlines

20 April 2017

China – The Chinese airlines will report their 1Q 2017 financial results under PRC accounting standards at the end of April. Here is our take on what to expect: The major Chinese airlines’ passenger traffic growth remained robust in 1Q 2017, rising 16% y/y, ahead of their 13% capacity expansion. This lifted passenger load factor by 2ppts y/y to 83%.

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US airlines analysis: Overbooking flights may not yield higher airline profits

12 April 2017

United States – After United Airlines’ much criticised attempt to “re-accommodate” a passenger on an overbooked Chicago-Louisville flight last Sunday night, we received a number of emails questioning the assumption that overbooking flights increases profits for the US airlines. After all, an airline that frequently overbooks flights could simply be inefficient at aircraft capacity deployment

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China Southern Airlines Initiation Research Report 2017 – Strong domestic drivers tempered by funding needs

10 April 2017

China – China Southern Airlines’ stock price has outperformed China Eastern Airlines’ but underperformed Air China’s in the past 12 months – its H share price has risen only 5% and underperformed the Hong Kong Stock Exchange Hang Seng China Enterprises Index (HSCEI) by 11%. CSA’s underperformance versus the market is mainly driven by investors’ concerns about the negative impact of passenger yield pressure

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China Eastern Airlines Initiation Research Report 2017: Rapid improvement but aggressive expansion risk abounds

10 April 2017

China – During our 16 years covering the Chinese airlines sector, we have seen the greatest improvement in China Eastern Airlines. Its net profit has risen 22% CAGR in the past 16 years and from falling into negative equity in 2008, CEA’s financial position has improved significantly in recent years, with its net debt-equity reduced to 2.3x at the end of 2016.

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Air China (753:HK) Initiation Research Report 2017: Top choice among the Chinese airlines

04 April 2017

China – Air China’s H share price has risen 14% but underperformed the Hong Kong Stock Exchange Hang Seng China Enterprises Index (HSCEI) by 3% in the past 12 months. Its underperformance versus the market is mainly driven by investors’ concerns about the negative impact of passenger yield pressure (-5% y/y in 2016), foreign exchange losses from the weaker Renminbi (-6% y/y) rising jet fuel prices (+29% y/y)

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Dry Bulk Shipping and BDI Analytics – Week 13 of 2017

30 March 2017

Global – We launch our inaugural weekly report, monitoring the global dry bulk shipping sector’s latest freight rates and trade flow trends, sharing our projected demand and supply projections in each dry bulk vessel segment as well as our views on how these key drivers could impact the dry bulk shipping stocks listed in the Asia Pacific region.

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American Airlines’ China Southern investment positives could be a long-term negative for Cathay Pacific

29 March 2017

China – China Southern Airlines (CSA) announced that it plans to issue 270.6 million new H shares, amounting to a 2.68% stake in CSA to American Airlines, Inc. The subscription price is HK$5.74 per share, amounting to a total cash consideration of HK$1.553B and the net proceeds after deducting expenses will be HK$1.548B.

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Container Freight Rates and Asian Shipping Stocks Monitor – Week 13 of 2017

27 March 2017

Global – We received a number of queries on why we focus more on tracking the weekly China Containerized Freight Index (CCFI) rather than the more commonly cited weekly Shanghai Containerized Freight Index (SCFI). While every index has its own benefits and limitations, we view the CCFI to be more representative of the container shipping freight rate changes felt by the liners covering 14 major trade lanes while the SCFI is limited to head-haul spot market freight

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US, UK electronics ban on Middle-East flights could benefit airlines in Asia

24 March 2017

Global – We assess the impact of the United States and United Kingdom’s ban on “large electronics devices” from carry-on luggage for international direct flights originating from specific Middle East and Africa airports. We estimate that there are 7 million connecting passengers travelling to/from the Asia Pacific on routes that hub in the airports affected by the electronics ban and some of this traffic is likely to divert to the Asia Pacific airlines.

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Container Freight Rates and Asian Shipping Stocks Monitor – Week 12 of 2017

22 March 2017

Global – We publish our weekly update on Container Freight Rates and Asian Shipping Stocks Monitor, highlighting the industry’s latest positive and negative drivers. WHAT’S POSITIVE? The liners’ capacity deployment on the major East-West trade lanes remains conservative in March. The scheduled weekly sailing capacity is only 1% higher y/y for the Asia-Europe trade and steady y/y for the Asia-North America trade.

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Global Dry Bulk Shipping Outlook – Is the current Baltic Dry Index (BDI) rally sustainable?

21 March 2017

Global – The Baltic Dry Index (BDI) has risen 25% ytd and the ytd average is 32% higher than the average levels in 2016. We explore the global dry bulk shipping sector’s key drivers to ascertain if this rally is sustainable going forward. In summary, we believe that the worst is finally over for the global dry bulk shipping sector and expect the industry’s operating outlook to improve gradually.

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Cathay Pacific Airways (293:HK) Initiation Research Report 2017 – Cathay Pacific outlook to stay gloomy?

16 March 2017

Hong Kong – We see further downside risk to Cathay Pacific’s share price to our fair value of HK$10 (0.7x P/B) as we expect Cathay Pacific outlook to stay gloomy near term and incur further losses in 2017 given its higher fuel costs and continued pressure on passenger yields.However, we do not expect the stock to de-rate below its historical trough of 0.7x P/B as we believe that the market has already priced in Cathay Pacific’s expensive fuel hedges and

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Orient Overseas (International) Ltd. Initiation Report – Still good value based on key fundamentals and potential takeover

14 March 2017

Hong Kong – OOIL’s share price has risen 35% and outperformed the Hang Seng Index by 27% year-to-date. We believe this is mainly driven by market speculation that OOIL could be a potential takeover target on top of the recent improvement in container shipping volume and freight rates in the spot market. OOIL is indeed an attractive takeover target given its strong business model. Key “push factors” for OOIL’s shareholders to sell

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Singapore Airlines Initiation Research Report 2017: Will SIA be a “sexy” stock again?

11 March 2017

Singapore – We believe the worst is over for Singapore Airlines but the stock could remain range-bound near term given our expectations of lacklustre earnings in 4QFY17 and continued pressure on passenger yields in FY18. However, the longer-term drivers lean on the positive side and given SIA’s strong balance sheet and attractively high break-up value, we expect Singapore Airlines’ share price to re-rate in the longer term …

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Container Freight Rates and Asian Shipping Stocks Monitor – Week 10 of 2017

09 March 2017

Asia – We launch our inaugural weekly report, monitoring the container shipping sector’s latest container freight rate and volume trends in the major trade lanes and assess their implications on the Asian container shipping stocks. Overall, the container freight rates and volume trends are looking more favourable y/y and are likely to drive the Asian container shipping stocks’ prices higher near term. In summary, we expect the Asian container shipping stocks with …..

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Global Container Shipping Outlook 2017: Capacity discipline is needed to support & lift freight rates; increased industry concentration helps

08 March 2017

Global – On paper, 2017 and 2018 look like another two challenging years for the global container shipping sector given the sizeable scheduled newbuild vessel deliveries this and next year, pointing to another 2 years of industry oversupply before we see any glimpse of sector recovery from 2019.

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Will Japan benefit from China travel curbs to South Korea?

06 March 2017

Japan – Will Japan benefit from China travel curbs to South Korea? We expect the Chinese outbound tourists to bypass South Korea and travel to other destinations in Asia near term following the Chinese government’s more stringent travel advisory on South Korea.

Japan is one of the most popular travel destinations for Chinese outbound tourists and is a natural alternative travel destination for the Chinese given its more similar average flight duration. The answer to the question …..

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Impact of China travel curbs to South Korea – Winners & Losers

06 March 2017

South Korea – We assess the impact of China travel curbs to South Korea. Background: Korea Joongang Daily reported on 4th March 2017 that the Chinese government has instructed the travel agencies to stop selling tour packages to South Korea starting from 15th March 2017 in the latest retaliation against the deployment of the United States’ Terminal High Altitude Area Defense (THAAD) system in South Korea. Chinese travelers can still visit Korea if they do direct ticket bookings and free-and-easy trips.

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Airlines Demand Supply Analysis in the Asia Pacific

01 March 2017

Asia Pacific – Our Airlines Demand Supply Analysis expect air travel demand and supply growth to be better matched going forward, from supply growth (+10% y/y in 2016) surpassing demand growth (+9% y/y in 2016) to nearly balanced demand-supply growth of 9% in 2017. As per capita income continues to rise in the region, the Asia Pacific airline sector’s air travel demand is expected to grow 8% per annum in 2018 and 2019 …

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Useful airlines valuation charts: Market Cap vs Expected Profit, Price/Book vs ROE, Price/Earnings vs EPS

01 March 2017

Asia Pacific – The listed airlines in the Asia Pacific region have an average market capitalization of US$3.9B and are expected to achieve an average expected net profit of US$305m based on consensus estimates in 2017. All the airlines with large market capitalization are based in North Asia with the exception of Singapore Airlines and Qantas.

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Brief overview of the airline sector capacity deployment in 1H17

01 March 2017

Asia Pacific – The Asia Pacific airline sector carries the world’s largest share of passenger traffic, accounting for 33% of the global revenue passenger kilometres (RPKs). The sector has been growing passenger capacity in terms of available seat kilometres (ASKs) by 8% y/y in 2016 with passenger load factors improving 0.8ppts y/y to 79.7% as passenger traffic grew 9% based on IATA’s statistics.

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Macroeconomic drivers of airlines share prices in the Asia Pacific

01 March 2017

Asia Pacific – The Asia Pacific airline stocks can be fairly macro-driven. One may not necessarily know much about the airline industry or individual company drivers and still earn a handsome return from trading some of the more liquid airline stocks. Here are some macro trade ideas that have worked in the past and remain relevant going forward:

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Global airline industry supply outlook in the next 5 years

01 March 2017

Global – Industry oversupply has driven intense fare competition in the past 6 years, depressing most Asian airlines’ profitability even after oil prices halved. When will we see better days? We take stock of the global aircraft orders to assess the industry’s supply outlook in the next 5 years. We expect the global airline industry supply outlook (especially Asian airline industry’s overall supply growth) to moderate in the coming years.

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1H17: Capacity expansion and cutbacks among airlines in Asia

01 March 2017

Asia – We analyze the Asia airlines’ near term flight schedules to determine which major route regions and airlines may face greater or lower load factor and yield pressure due to their near term capacity plans. Here are our key findings – In Asia, which is the largest route region for the Asia Pacific aviation sector, IndiGo, Lion Air and Shandong Airlines have the most aggressive capacity growth plans in 1H17 while …

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