[ET Net News Agency, 9 November 2018] HSBC Global Research lowered its target price for
Orient Overseas International (OOIL)(00316) to HK$46 from HK$47 and maintained its "hold"
rating.
The research house took a more cautious view on the near-term prospects for OOIL and its
parent, COSCO Shipping Holdings (CSH)(01919). HSBC previously argued that OOIL's earnings
should rebound based on sequentially better demand-supply in 2H 2018-2019. While it
remains positive about the merger synergies, HSBC lowered its near-term expectations as it
expects vessel deliveries will likely be skewed to 1H 2019 and coincide with the overhang
on demand outlook from the US-China trade tensions.
With the two-tier fuel structure under IMO 2020 (clean fuel versus scrubbers), shipping
lines such as CSH and OOIL that have chosen to use clean fuel may not be able to
completely pass through the higher costs due to intense competition.
HSBC now forecast a smaller profit in 2H 2018, resulting in a full-year loss of US$51m
for OOIL in 2018 versus its estimate of a marginal profit previously. Despite its lower
estimates, HSBC still forecast sequential improvement in 2H 2018-2019.