It’s Hard to Contain This Shipper

04/19/2007 12:00 am EST

Focus:

Robert Hsu

Editor, China Strategy and Asia Edge

Robert Hsu, editor of Asia Edge, says Seaspan, a container-shipping charter company, should continue to profit from the boom in world shipping—especially from China.

Thanks in part to China’s export growth, the international shipping industry is growing more than 10% a year and the container trade volume from China is growing at nearly 20% a year.

Seaspan (NYSE: SSW) is a market leader in the container-shipping sector. It’s also a major beneficiary of strong Chinese and Asian trade activities.

Unlike many container shippers, Seaspan buys its own ships and charters them to other companies on long-term, fixed-rate contracts. Most container shippers “charter-in” their capacity [or] contract vessels from third parties (like Seaspan) as opposed to purchasing vessels outright. In fact, chartered-in vessels accounted for 50% of the capacity of the top ten liner companies in 2004—compared with just 30% in 1999.

Seaspan CEO Gerry Wang, born in China and based in Vancouver, BC, has gone out of his way to build strong ties with China because of its growing international trade presence. Seaspan’s biggest client is China Shipping Container Lines (CSCL), which is the sixth largest container shipping company in the world. Currently, 13 container ships—or a full half of Seaspan’s fleet—are under contract with CSCL.

Seaspan plans to further diversify its customer base by adding major, rapidly growing players. It has its sights set on China-based Cosco Container Lines, the world’s seventh-largest container shipping company.

Less than two years ago, at the time of its initial public offering in August 2005, the company owned only ten modern container vessels and had contracts to purchase another 13 after they were completed.

Last year and early this year, Seaspan ordered an additional 21 new vessels that are currently being built at shipyards in China and Korea. These vessels will be delivered between 2007 and 2009. By 2009, Seaspan’s fleet will double to 47 contracted vessels with a shipping capacity of 205,900 twenty-foot equivalent units. That will make Seaspan one of the three largest independent containership owners in the world.

In 2006, revenue surged 58% to $118.5 million, while earnings skyrocketed 139%. The company also [paid] an impressive dividend yield of 7.9%.

First-quarter 2007 earnings of 31 cents per share easily beat Wall Street’s estimates of 26 cents per share. In addition, the company [boosted its dividend] by 5% over the dividend paid in the fourth quarter of 2006.

The shares climbed to a new record high above $30 this week on the strong numbers. So far the stock has gained 30% this year, and I believe the momentum will continue.  [SSW is a Buy under $33.] I expect it to reach $45 or higher by year-end, which will give us a nice gain of 40%. And that doesn’t even take into account the impressive 8% annual dividend yield!

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