Zim Integrated Shipping Services Ltd.

ZIM Details

Zim Integrated Shipping Services Ltd. (NYSE: ZIM) is an Israel-based asset-light container shipping company. The company operated with a fleet of 87 vessels and chartered in 98.7% of its Twenty-foot Equivalent Unit (TEU) capacity. The company encountered an increase in demand globally for container shipping services between December 31, 2020 and February 28, 2021 and chartered in an additional 11 vessels. The company operates in five global geographic trade zones, namely 1) Transpacific (40% of carried TEU), 2) Atlantic (21%), 3) Cross Suez (12%), 4) Intra-Asia (21%), and 5) Latin America (6%). ZIM operates in one segment, i.e., Container Shipping and allied services. The company's ordinary shares were listed on New York Stock Exchange (NYSE) on January 28, 2021, at an issue price of USD 15 per share. As of June 02, 2021, the company’s market capitalization stood at USD 5.00 billion.

Secondary Equity Offering: On June 1, 2021, ZIM announced a secondary offering of 6.7 million ordinary shares to be sold by the Company's selling shareholders. The underwriters have a 30-day option period to purchase up to 1.0 million additional ordinary shares at the public offering price, less underwriting discounts and charges, from the selling shareholders. The Company will not receive any proceeds from this offering.

Strategic Agreement for LNG-Fueled Vessels: In February 2021, the company entered into a tactical agreement with Seaspan Corporation for the long-term charter of ten 15,000 TEU capacity of Liquified Natural Gas (LNG) dual-fuel container vessels, which is projected to be delivered between February 2023 and January 2024. These vessels could be used to serve the company’s Asia-US Coast trade zones. According to the contract, ZIM expects to incur around USD 16 million to USD 17 million in annualized charter hire costs per vessel over the tenure of the contract, depending on the selected charter period.

Robust Q1FY21 Results: The company reported a massive increment of 111.89% in total revenue to USD 1,744.33 million in Q1FY21 (ending March 31, 2021) compared to USD 823.21 million in Q1FY20 (ending March 31, 2020), primarily due to an increase in shipping volumes and freight rates. The company reported the total carried volume of 818 K TEUs in Q1FY21 compared to 638 K TEUs in Q1FY20. ZIM reported the average freight rate of 1,925 USD/TEU in Q1FY21 compared to 1,091 USD/TEU in Q1FY20. The company reported a sharp increase in net income to USD 589.58 million in Q1FY21 compared to the loss incurred of USD 11.91 million in Q4FY20. As of March 31, 2021, the company has cash & cash equivalents of USD 1,188.40 million while a total debt of 2,164 million.

Key Financial Metrics (Source: Investor Presentation, May 19, 2021)

Key Risks: The company operates in the container segment of the shipping industry. The container shipping industry is volatile and cyclical in nature. The companies in this industry have witnessed frequent changes in profitability due to rapid fluctuations in the economics of freight rates and bunker prices. Further, ZIM charters in almost all of its fleet, which makes it more vulnerable to fluctuations in the charter market.

Outlook: For FY21, the company expects its EBITDA to be in the range of USD 2.50 billion to USD 2.80 billion due to higher expected freight rates and shipping volumes.

FY21 Guidance (Source: Investor Presentation, May 19, 2021)

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Data Source: REFINITIV, Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ZIM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ZIM's share price has surged by 110.23% in the past three months and is currently trading at the higher end of the 52-week range of USD 11.34 to USD 47.37. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 29.26. Considering the significant increase in the stock price in the past three months, growth in financials, associated risks, and current valuation, we recommend an "Expensive" rating on the stock at the closing price of USD 44.15, up by 1.38% as of June 02, 2021.

* The reference data in this report has been partly sourced from REFINITIV.