Today I purchased shares in Sinotrans Shipping (HK:368). The shipping industry is facing a very poor operating environment characterised by excess supply, unfavourable conditions for international trade and increasing cost pressures. As a result earnings have declined and share prices have followed. Sinotrans is no exception and its shareholders have been sharing the pain.
However, the company is is sitting on approximately USD880 million in cash which is slightly higher than the market capitalisation - in effect the shipping fleet is being valued at zero. This strikes me as excessively bearish even if the company does end up losing money in the second half of the year (it made a small profit in the first half). I am not expecting any dividend in the current year.
I paid an average of HK$1.68 per share.
As an aside, I spent some time looking at the PRC gold mining companies but could not get comfortable on the mine life issue so will not be purchasing.
Why this company and not say, Pacific Basin or Orient Overseas?
Sorry - replacing the previous comment.
I looked at all three companies. Sinotrans is selling at a discount of about 66% to NAV compared to 45% for Pacific Basin and 20% for OOIL (based on the published interim results). Sinotrans is also sitting on USD885 million in cash (HKD 6.8 billion) which is more than its market capitalisation (HKD6.4 billion). OOIL and Pacifc Basin both have net debt. The balance sheets look okay, but I found Sinotrans' cash position pretty compelling.
Another way of looking at it, when I look at Sinotrans' balance sheet I could argue that I am getting the ships for free.
Am I missing anything?
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