The share price of Orient Overseas (International) Limited (OOIL), parent company of the container carrier Orient Overseas Container Line (OOCL), continues to trade at a significant discount to book value despite a recent price surge that came amidst speculation that OOIL’s container shipping business unit could be up for sale, according to Alphaliner.
While several potential buyers have been put forward for OOCL, including China Merchants Group and CMA CGM in addition to COSCO and Evergreen, Alphaliner said that any bid for the company will need to offer a higher price premium before the Tung family, which controls 69% of OOIL, would be prepared to part with the prized asset.
OOIL’s previous track record in divesting assets could provide an indication of the premium required to buy OOCL.
In 2006, OOIL had sold four container terminals in North America for USD 2.35 billion and in 2010, it sold its property investments in China for USD 2.2 billion. OOIL booked significant gains on both disposals, recording profits of USD 1.99 billion for the terminals sale and USD 1 billion for the divestment of its Chinese real estate investments.
OOIL’s current market capitalisation of USD 3.16 billion is trading at a 33% discount to its book value of USD 4.69 billion.
Alphaliner believes that the Tung family is unlikely to accept a price below book value for OOIL, especially since most of its peers are trading at higher multiples. This means that any bid to acquire OOIL will have to be at a price higher than USD 4.7 billion, in addition to taking over total liabilities of a further USD 4.7 billion.
This would imply a price for OOIL of at least HKD 58 per share. OOIL’s share price hit a 14 month high of HKD 40 per share on 17 January, according to Alphaliner.