Special Report: Chelsea Logistics IPO Analysis #5 (by RCBC Securities)

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Other Chelsea Logistics (CLC) IPO Reports (with EXCLUSIVE Analysis and Recommendation!):

 

Chelsea Logistics (CLC) IPO — Our Partner Broker’s Analysis

 

SUMMARY OF ANALYSIS AND RECOMMENDATION

We used discounted cash flow (DCF) valuation to arrive at our Target Price for CLC.

After 2020, for the next 10 years, we assumed 10% annual growth in cash flows to consider benefits from capital spending. From 2031 onwards, we assumed constant growth over an infinite period.

Buy / Hold / Sell Recommendation: Exclusive to Premium members only

Target Price for CLC: Exclusive to Premium members only

 

COMPANY OVERVIEW

Chelsea Logistics Corporation (CLC) is engaged in the business of cargo and passenger shipping, while its recent acquisition of control in 2GO also involves it in non-marine logistics. It is undertaking an initial public offering of up to 547 million shares potentially raising up to PHP 5.84 billion. The company’s key investment highlights are summarized below.

 

Largest oil tanker fleet in the country

CLC has formidable presence in domestic shipping. Chelsea Shipping Corp. is focused on shipping of petroleum and other liquids. It has the largest tanker fleet in the Philippines by Gross Registered Tonnage (GRT) and capacity. TransAsia Shipping Lines transports cargo and passengers via its ROPAX fleet. Through TransAsia, CLC has 3% of the ROPAX market share by GRT.

 

Fleet expansion to drive growth

CLC’s fleet expansion plan will drive the company’s growth. The firm plans a major purchase of a medium range tanker (at least 10x of local tanker in capacity) by 1st Quarter 2018 at the latest. It will increase tanker capacity by 93% in the next 3 years to 119mn liters by acquiring six larger and optimal-sized tanker vessels to maximize capacity for the least amount of crew. It will also augment its ROPAX fleet with seven ROPAX purchases planned within the next three years.

 

CLC is competitive, but barriers to entry are also high

The high standards of CLC’s fleet make it a tough competitor and secured the regular patronage of big companies such as Petron and Cebu Pacific. Chelsea’s fleet has the stamp of approval from both local and international classification societies which certify CLC’s fleet meets world-class operational and safety standards. Its competition is also kept in check by high entry barriers such as the massive capital investment requirement as well as legal barriers to ownership for foreign shipping companies.

 

2GO expected to boost freight and passage revenues

Fleet expansion will drive revenue growth for CLC going forward. The company plans to buy six larger tankers and seven ROPAX vessels over the next three years. CLC’s acquisition of 2GO will grow its existing freight and passage revenues, while giving it exposure to non-marine logistics revenue growth.

Integration of 2GO into CLC would initially bring down the group’s margins as 2GO has lower margins. However, anticipated synergies in the group’s inter-segment operations and 2GO’s efforts in improving credit risk management are forecasted to bring the group’s margins within CLC’s historical performance in two years.

We forecast 2017 core net income of Chelsea Logistics post-consolidation with 2GO to reach PHP 539 million, 516% year-on-year (yoy). Of this, PHP 155 million will be attributable to CLC ex-2GO, 69% higher yoy, while PHP 383 million will be attributable to 2GO. The projected core net income for 2GO is at PHP 1,090 million, up 39% yoy.

 

Chelsea Logistics Corp. (CLC) IPO — Our Partner Broker’s Valuation and Recommendation

We used discounted cash flow (DCF) valuation to arrive at our Target Price for CLC.

After 2020, for the next 10 years, we assumed 10% annual growth in cash flows to consider benefits from capital spending. From 2031 onwards, we assumed constant growth over an infinite period.

Buy / Hold / Sell Recommendation: Exclusive to Premium members only

Target Price for CLC: Exclusive to Premium members only

 

Other Chelsea Logistics (CLC) IPO Reports (with EXCLUSIVE Analysis and Recommendation!):

 

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