Cosco Shipping Holdings could be set to boost its payout to shareholders and even introduce an interim dividend for the first time, says HSBC.
The Hong Kong-listed shipowner’s annual dividend policy for the three-year period of 2020-2022 has involved a payout ratio of not less than 30%.
“Cosco Shipping Holdings paid only 16% of reported profits in 2021, likely because its retained earnings had just turned positive that year,” said HSBC.
“We think that with another year of record profits in 2022, the distributable profits could further increase and enable the company to pay an even higher payout on the reported profits.
“Indeed, given its listed subsidiaries CS Ports pays 40% annually and OOIL’s pay-out averaged over 75% in the past four years, we argue that Cosco Shipping Holdings could potentially surprise the market,” the bank added.
HSBC said it was modelling a 35% payout for Cosco Shipping Holdings in 2022 including an interim dividend payout of 25% and 48% for the first and second halves of 2022, respectively.
“We argue that given the super cycle of earnings that we are in now, the fact the Cosco Shipping Holdings’ retained earnings have turned positive, and its peers have been rather aggressive in raising their payout or buying back shares, the first half 2022 results would be an opportune time to announce an interim dividend,” HSBC said.
“This would indicate to the market better visibility on its dividend outlook and could help lift the share price from its recent underperformance, while a disappointment however could act as a negative catalyst for Cosco Shipping Holdings’ share price.”
HSBC also says that Cosco Shipping is “deeply undervalued” by capital markets versus its peers on the back of the surge in vessel asset valuations.
The bank said the liner company’s appraised container assets represent 197% of its current market capitalisation.
“The newbuild and second-hand values for containerships have increased manyfold and remained elevated. The carrying value of vessels could have increased to 2-3x vs the net book value,” HSBC said.
“In certain vessel sizes, current second-hand prices of 10-year-old vessels are higher than even new-build prices.
“We apply a multiplier of two on reported net book value of containerships as an approximation to evaluate the market value of these assets,” the bank added.
Cosco Shipping Holdings is the world’s fourth largest container ship operator behind Maersk, MSC and CMA CGM, according to data from Clarksons.
The company currently deploys around 429 ships of 2.87m-teu of which 245 vessels of 2.1m-teu are owned, according to the shipbroker.
The company also has a further 32 ships of 585,272-teu on order which is about 28% of its existing fleet by teu capacity.
