[ET Net News Agency, 6 September 2018] HSBC Global Research lowered its target price
for COSCO Shipping Holdings (CSH)(01919) to HK$3.8 from HK$4.5, but upgraded its rating to
"buy" from "hold".
The research house said CSH is now the third biggest shipping line by global fleet. With
consecutive recurring losses since 2011, CSH's book value declined by 56% as of 1H 2018
end versus 2010. Also, with two major acquisitions now and an ambitious new building
program underway, CSH's net debt to equity increased to 1.04x at 1H end versus 0.23x in
2010.
While interest costs can erode away operating profits, HSBC argued that even small
increases in margins could drive a disproportionate increase in ROE. HSBC expects a 1ppt
change in margin for CSH to drive a 5-6ppt increase in ROE given the thin equity base.
It expects CSH' margins to rebound to 4.1% in 2019 versus 1.8% in 1H 2018, and ROE to
improve to 9.4% in 2019 from breakeven in 1H 2018. (KL)