Asian Dividend Gems: Regional Container Line (RCL)

• Regional Container Line is the largest container shipping company in Thailand. It has attractive valuations, strong balance sheet, and has a major tailwind of higher global shipping freight rates.

• RCL's dividend yield averaged 9.6% from 2019 to 2022. The biggest factor driving higher shipping freight rates in 2024 has been the Suez crisis resulting from Houthi drone attacks.

• We used Smartkarma's Smart Score Screener system to find Regional Container Line (RCL TB).

Conclusion First

There are three major reasons we have a Positive view of Regional Container Line (RCL TB), the largest container shipping company in Thailand.

• First, there has been a sharp increase in global container shipping rates this year. Drewy World Container Index (WCI) has nearly doubled from end of 2023 to 8 February 2024, driven by the repeated drone attacks on many ships in the Red Sea by the Houthis. There are increasing concerns that these low-cost based drone attacks on ships in the Red Sea and other parts of the world may not be one-off events but rather these attacks could increasingly proliferate, which could cause higher global freight rates for longer period of time.

• Second, RCL has attractive valuations. At the end of 3Q 2023, it had equity of THB 47.2 billion. Considering its current market cap of THB 21.1 billion, it is trading at P/B of 0.45x, which is 43% lower than the average P/B ratio of 0.79x in the past seven years. Net cash and short term investments as a percentage of market cap is 51%.

• History of high dividend yield - Regional Container Line's dividend yield averaged 9.6% from 2019 to 2022 and 12.8% from 2020 to 2022. With improving sales and profits in 2024, there is a growing likelihood of the company paying out healthy dividends once again.