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Jinhui: Orphaned Dry Bulk Stock Trading At 50% Discount To NAV

|Includes: Jinhui Shipping & Transportation Ltd. (JNSTF)

Jinhui Shipping and Transportation Limited is an Oslo-listed dry bulk shipping company headquartered in Hong Kong. The company owns 38 dry bulk vessels and charters in two dry bulk vessels. The company has been publicly traded in Oslo since 1994.

The thesis here is very simple: Jinhui is the cheapest shipping equity on the market out there based on NAV. And, dry bulk shipping rates are poised to improve over the next few years as a result of a limited order book and significant demand expected as a result of new mining projects in Australia and Brazil.

Jinhui trades with a $562mm enterprise value despite fleet value of approximately $800mm, which is based on recent broker quotes from Clarkson's, and other reputable shipping valuation services. Jinhui's fleet value plus cash less debt comes to ~NOK32/share, which compares to Jinhui's current market price of NOK15.70/share. One of Jinhui's competitors, Eagle Bulk (NYSE: EGLE), has virtually the same sized fleet (45 supramax dry bulk vessels worth about $950mm) and has a $1.2bn enterprise value. This doesn't make any sense. Unlike Eagle, Jinhui has a very safe capital structure (50% LTV based on brokers value) with a low cost of debt and no near-term maturities.

Why does Jinhui trade at a discount?
1) Corporate governance - the company has a history of making some poor non-shipping investments, but has said it will not do so in the future. In addition, the company's G&A per operating day is a bit higher than the peers.
2) Virtually no float - the company's three largest shareholders own ~80% of the company (one is Jinhui's holding company that is listed in Hong Kong, another is Genco, a US listed dry bulk company).
3) No sellside coverage - why would anyone cover a company with such a tiny float?
4) It's listed in Oslo - Most investors are not aware of this company given its Oslo listing.

What will unlock the discount?
1) Genco may sell its stake at some point - Genco owns 20% of the company and is very leveraged. The company may hire an investment bank to sell its stake to the public in an offering.
2) Recovery in the dry bulk market - as other dry bulk equities rally, new investors will see the value discrepancy
3) Management reinitiates a dividend and/or buys back stock or looks to sell the company

Recap: Jinhui vs. Eagle
Owned ships: 38 vs. 45
Fleet value: $800mm vs. $950mm
Enterprise Value: $562mm vs. $1.2bn

Capital structure: $526mm gross debt, $185mm cash and securities, $222mm market cap = $562mm enterprise value
Assets: ~38 owned vessels (mostly supramax) worth ~$800mm

Disclosure: I am long OTCPK:JNSTF.