Orient Overseas' 1H15 net profit surges 32% to $238.6m

It's 70% of full-year consensus.

Orient Overseas (OOIL) reported above consensus earnings for 1H15, with 1H15 net profit came in at $238.6m, up 32% yoy and amounting to 70% of full year consensus.

According to a research note from Jefferies, operating margin doubled to 6.9%, the highest since 1H11, thanks to lower oil price and relatively stable freight rates in 1Q15.

The benefit of lower fuel and cargo costs outweigh the impact of lower freight rates and lower volume.

Here's more from Jefferies:

Container and logistics revenue dropped 6% yoy as weak Asia-Europe demand put pressure on freight rates: 1H15 average freight rates dropped 4% and volume dropped 2% yoy.

OOIL contract exposures in Transpacific remained stable at 65% and the company has seen higher yoy contract rates. Logistics business has also slowed with revenue declining 1.8% yoy, as competition ramps up in the face of slowing Chinese economy, though profitability remains stable, according to management.

Unit cost dropped by 8.4% yoy - cargo costs lower than expected: The improved profitability was primarily driven by: 1) lower fuel costs as expected by market and 2) unexpected drop in cargo costs per TEU. Bunker costs dropped 37% yoy, with bunker price declining from $601/bbl to $370/bbl and bunker consumption being flat.

Cargo costs (which include terminal and inland transportation costs) were lower than expected, dropping by 5% yoy. Like many shipping companies, OOIL has decided to cut its exposures to high-cost inland cargo, thus reducing its intermodal costs. USWC port congestion led to higher equipment repositioning costs, up 7% yoy.

Valuation/Risks: OOIL is our top pick in Asia ex-Japan shipping. We believe shipping companies are key beneficiaries of lower oil price in 2015. We maintain our Buy rating on OOIL and 12 month PT of HK$62. Key risks: Higher fuel costs, cargo volume declines, further freight rate deterioration.