2007/2008 Guide to Asia's Blue Chip Companies

Transport

Moving right along

Transport has been an exciting sector for the past year, and although fuel costs have continued to spiral upwards, both airlines and the transport shipping sector has forged steadily ahead at capacity.

Boeing and Airbus announced numerous lucrative contracts in late 2007, suggesting that airlines – whatever the costs – shall place new orders; containerships, likewise, have seen order books at shipyards reach previously unheard of records.

One of the most exciting headlines this year was when Singapore Airlines (SIA) took delivery of the Airbus A380 in October. The double-decker plane – and world’s largest passenger jet – had its inaugural commercial flight on October 25 to Sydney. Configured with 471 seats in three classes, the A380 carried 455 passengers on its voyage to Sydney, landing without incident in the mid-afternoon.

But even the delivery of the sky-Goliath was not the hottest news from SIA in 2007. That honour went to the signing of an agreement between SIA and Temasek Holdings to buy a 24% stake in China Eastern Airlines in late November.

The pact had been hammered out in the spring/summer of 2007, and its announcement was swiftly followed by Air China and Cathay Pacific’s efforts to derail the transaction. By mid-September, a speculative frenzy in China’s airline shares saw stocks in Air China surge 35%, while China Eastern’s rose 47% and China Southern Airlines’ 26%.

The agreement which would give 15.3% of the company to SIA and 8.3% to Temasek Holdings (the Singapore investment company), is subject to a two-thirds minority approval by both holders of China Eastern’s Shanghai-listed A-shares as well as H-share investors at an EGM on January 8.

Several analysts believe Air China will counter-bid to block the deal and mount another attack on China Eastern. Whatever the outcome, it is certain that China’s airline industry will need to further consolidate in order to improve its performance to compete with international carriers. China will accelerate the opening of its skies after 2009 and the decision to allow the introduction of foreign carriers such as Cathay and Singapore Airlines is recognition by the authorities that more-aggressive action is required to whip mainland carriers into shape. Foreign airlines can acquire up to 49% of a domestic airline, but an individual foreign airline can own no more than 25%.

The deal with SIA would give the airline an important foothold in China and manage a stronghold in Shanghai, which is China’s busiest hub after Beijing.

Another great business story that began in late 2006 was Orient Overseas (International) Limited’s (OOIL Group) announced sale of two terminals in Vancouver, Canada and two in New York/New Jersey in an analyst-baffling $2.35 billion deal to the Canadian Ontario Teacher’s Pension Plan.

Originally, analysts had suggested the sale of the four ports could fetch between $1 billion and $1.4 billion, unlocking the value of the group to shareholders.

OOIL Group reported a first half 2007 profit of $2.2 billion against with $280.5 million earned during the first half of 2006, a more than eight-fold increase, most of which was attributable to the (final) $1.9 billion sale of its North American container terminals. Shareholders enjoyed a special dividend of $0.80 per ordinary share as a result of the sale of the group’s terminals division, making a good many people exceptionally happy following what looked like troubled times as the industry players skirted a dance with downward-spiraling freight rates.

OOIL held a conservative hand throughout, adhering to its organic-growth policy and avoiding the M&A scenarios that dramatically changed the face of the container shipping market in 2005-2006 when A.P. Møller-Mærsk bought P&O Nedlloyd for $2.96 billion and Hapag Lloyd’s parent company TUI acquired CP Ships for $2 billion. Those sales were inspired by concerns of undercapacity in the world shipping market, yet the bears almost immediately began sounding their concerns of potential overcapacity should the China market slowdown.

OOIL Group stuck to its guns and worked the spot market in shipping, avoiding the ill effects of lowering freight rates. As a result, it listed in our top four for ranking by net profit, while the effects of special dividends is seen in OOIL’s spectacular 23.17% ROE –which placed it firmly at number one in the FA100’s ROE ranking list.

Ranking by revenue
Country	Company	(million $)
SP	Singapore Airlines	10,008.30
HK	Cathay Pacific	7,838.88
SP	Neptune Orient Lines	7,263.50
HK	Orient Overseas (International)	4,609.75
MK	MISC	3,362.27
HK	MTR Corp	1,230.46

Ranking by revenue growth
Country	Company
HK	Cathay Pacific	19.40%
SP	Singapore Airlines	8.60%
HK	Orient Overseas (International)	6.10%
MK	MISC	4.20%
HK	MTR Corp	4.20%
SP	Neptune Orient Lines	-0.10%

Ranking by net profit
Country	Company	(million $)
SP	Singapore Airlines	1,469.92
HK	MTR Corp	1,000.64
MK	MISC	856.27
HK	Orient Overseas (International)	580.6
HK	Cathay Pacific	527.21
SP	Neptune Orient Lines	363.74

Ranking by ROE
Country	Company
HK	Orient Overseas (International)	23.17%
MK	MISC	15.50%
SP	Neptune Orient Lines	15.43%
SP	Singapore Airlines	14.90%
HK	MTR Corp	10.58%
HK	Cathay Pacific	10.15%

Ranking by total points
Country	Company
SP	Singapore Airlines	36
HK	Orient Overseas (International)	32
HK	Cathay Pacific	30
MK	MISC	30
SP	Neptune Orient Lines	27
HK	MTR Corp	27