Ilham Bachtiar
Kyle Castner
Tien Yun Chao
Terry Kwan
Presented April 21, 2015
Agenda
Introduction
Macroeconomic Overview
Industry Analysis
Matson Business Overview
Stock Market Performance
Financial Analysis
Valuation
Recommendation
Intro
Macro/
Industry
Business
Market
Prospect
Financial
Analysis
Financial
Projection
Valuation
Recomm
endation
Matson
-Listed on NYSE – MATX
Day's Range:
41.51 - 42.27
-Current Price = $41.44
52wk Range:
22.48 - 42.55
- Small Cap stock that is growing
Volume:
171,422
Avg Vol (3m):
257,702
Market Cap:
1.82B
P/E (ttm):
25.75
Forward P/E (1yr): 20.42
Growth % EPS
26.10%
EPS (ttm):
1.63
P/S (ttm):
1.05
Div & Yield:
0.68 (1.60%)
10-Feb-15
PEG Ratio (5 yr
expected):
3.80
Ex-Dividend Date:
Source: Yahoo finance
Intro
Macro/
Industry
Business
Market
Prospect
Financial
Analysis
Financial
Projection
Valuation
Recomm
endation
U.S Trades with China
Month
Exports
Imports
Balance
TOTAL 2014
124,024.0
466,656.5
-342,632.5
TOTAL 2013
121,736.4
440,447.7
-318,711.3
TOTAL 2012
110,515.6
425,626.2
-315,110.6
TOTAL 2011
104,121.5
399,371.2
-295,249.7
TOTAL 2010
91,911.1
364,952.6
-273,041.6
U.S.-China Trade Balance
342,632.50
315,110.60 318,711.30
295,249.70
273,041.60
2010
2012
2013
2014
Series2
Source: Census.gov
Intro
2011
Macro
/Industry
Business
Market
Prospect
Financial
Analysis
Financial
Projection
Valuation
Recomm
endation
Industry
Revenue Outlook
Year
Revenue
$ million
Growth
%
2016
38,715.6
2.7
2017
40,162.4
3.7
2018
41,241.6
2.7
2019
42,125.9
2.1
A rise in per capita disposable
income increases demand for
oceanic and coastal transportation
Source: IBIS World
Intro
Macro
/Industry
Business
Market
Prospect
Financial
Analysis
Financial
Projection
Valuation
Recomm
endation
Matson, (NYSE:MATX)
• Sector: Services; Industry: Shipping
• Public shipping company which was founded in 1882, with headquarter
in Honolulu, Hawaii (split from then-parent company Alexander &
Baldwin in 12/1/2011)
• Two segments: Oceanic Transportation(75% total revenue) and
Logistics(25% total revenue)
• Fleet consists of 18 owned and three chartered vessels
• Dominant cargo transportation company in Hawaii
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Ocean Transportation
• A vital lifeline of ocean freight transportation services to the island economies of Hawaii, Guam
and Micronesia
• Premium, expedited service(10 day transit time) from China to Long Beach
• Minor route: New Zealand, Fiji, Samoa, American Samoa, Tonga and the Cook Islands
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Logistics
• Transportation intermediary that
provides intermodal rail services,
highway, warehousing and
distribution
• Third-party logistics services for
North American customers and
international oceanic transport
customers
• Operates six customer service
centers, including one in China (for
supply chain services)
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Management
Matthew Cox (President and CEO)
◦ Started with Matson as the CFO
◦ Changed roles to COO, as well as President of the Real Estate Division
◦ First Executive Role was at Dynamic Distribution
Intro
SOURCE: BLOOMBERG
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Maritime Laws--the Jones Act*
Higher standards: all vessels transporting cargo between covered U.S. ports must be built
in the U.S., registered under the U.S. flag, manned by predominantly U.S. crews, and owned and
operated by U.S.-organized companies that are controlled and 75 percent owned by U.S.
citizens.
the carriage of cargo between the U.S. West Coast, Hawaii and Alaska
on foreign-built or foreign-documented vessels is prohibited  Hawaii
is highly dependent on ocean transportation, but Jones Act ensures
frequent, reliable, roundtrip service to keep store shelves stocked,
reduces inventory costs and helps move local products to market.
*63 percent of Matson’s revenues generated by ocean transportation services came from trades that were
subject to the Jones Act
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Porter’s Five Forces
Threat of Substitutes: Low
• Shipping & Logistics
Threat of New Entrants: Low
• High capital needed
Bargaining Power of Suppliers: High
• Not many ship makers
Bargaining Power of Buyers: Low-Med
• Price competition
Rivalry: Low to Med
• Jones Act & Not many competitors
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
SWOT Analysis
Strengthens
•
•
•
Weaknesses
Strong, defensible market position
Primary carrier to Guam since departure of
major competitor in late 2011
Jones Act law protected
•
•
•
Depend on key personnel, including its senior
management and skilled employees
Risks associated with conducting business in
foreign shipping markets
Saturated markets
Opportunities
•
•
•
Intro
Threats
Pending Horizon Lines Acquisition
Fastest transit in China service: 10 days (vs.
12-14 day trade standard)
Growth in trade between U.S. and China
Macro/
Industry
Business
Market
Prospects
•
•
Increase in fuel prices, or changes in the
Company’s ability to collect fuel surcharges
Possible revocation of the Jones Act
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
MATSON
TO ACQUIRE
HORIZON’S ALASKA OPERATIONS
Expected to close in 2015
Transaction Overview
Horizon Lines
Purchase Price
Hawaii Business Sale
Financing
•Three division: Puerto Rico (cease Puerto Rico service by the end of 2014), Hawaii, Alaska
•$0.72 per common share in cash, plus repayment of Horizon’s debt at closing
•Equity value of $69.2 million; transaction value of $456.1 million
• Horizon is selling its Hawaii Operation to Pasha for $141.5 million
• Matson/Horizon Transaction is subject to the completion of the Pasha/Horizon Transaction
•Expect to fund through combination of Matson’s cash on hand and borrowings under existing
revolving credit facility
Grows and Enhances
Platform
•Annual revenue of ~$330 million starting 2017
•Unique opportunity to leverage Matson’s platform into Alaska
•Geographic revenue diversification
Source : http://www.marketwatch.com/story/matson-to-acquire-horizons-alaska-operations-2014-11-11
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Acquisition of Horizon Line Inc.
Matson
32,400 containers and 9,800 chassis
Source: Matson’s Management
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Synergy of the acquisition
Before
11/10/2014
29.23
0.38
29.61
Matson Stock Price
Horizon Stock Price
Combined Price
Matson #Shares
Horizon #Shares
43,200,000
40,623,000
Matson Market Capital
Horizon Market Capital
Combined Market Capital
Market Perceived Synergy
1,262,736,000
15,436,740
1,278,172,740
494,324,670
Sources and Uses of Funds ($ in millions)
Sources and Uses of Fun
Cash and Cash Equivalents
Borrowing on Revolving Credit Facility
Total Sources
Uses of Funds:
Transaction Value
Transaction Costs
Total Uses
Intro
Macro/
Industry
Business
After
Matson's Offer
11/11/2014
40.4
0.67
0.72
41.07
1,745,280,000
27,217,410
1,772,497,410
225.00
256.00
481.00
•
Premium Offered: 0.72 - 0.38 = $0.34
•
Synergy : $0.97 to 1.03
•
Premium < Synergy  good deal
456.00
25.00
481.00
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Comparable Transactions
Merger & Acquisition Statistics
Valuation Sum m ary
Average Deal Value:
201.94
Average TEV/Revenue:
4.17
Average TEV/EBITDA:
10.13
Average Day Prior Premium(%):
12.85
Average Week Prior Premium(%):
20.02
Horizon’s
Lines
Inc Premium(%):
premium offer :
Average
Month
Prior
0.72/0.38-1 = 22.98
89%
Horizon’s Lines Inc TEV/Revenue : 0.52
Horizon’s Lines Inc TEV/EBITDA : 6.37
Canceled transactions may be included in these statistics.
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Recent Stock Performance
SOURCE: BLOOMBERG
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Current Ratio
Quick Ratio
Cash Ratio
Liquidity Ratios
FY 2010
FY 2011 FY 2012
0.71
0.95
1.11
0.51
0.64
1.01
0.04
0.04
0.10
Operating Profit Margin
Net Margin
ROA
Profitability Ratios
FY 2010
FY 2011 FY 2012
FY 2013 FY 2014
9.15%
5.37%
6.20%
6.13%
8.17%
6.72%
2.34%
2.94%
3.28%
4.13%
1.36%
2.47%
4.43%
5.34%
Debt/Assets
Debt/Equity
Interest Coverage
Solvency Ratios
FY 2010 FY 2011 FY 2012
FY 2013 FY 2014
20.92%
7.77%
27.17%
22.92% 26.65%
45.95%
17.60%
114.01%
84.59% 102.69%
15.29
15.29
10.21
8.26
6.97
DuPont Analysis
FY 2013
1.17
1.48
0.57
Joe Greenblatt Ratios
FY 2010
FY 2011
FY 2012
EBIT/Tangible Assets
EBIT/Enterprise Value
Intro
7.32%
5.80%
Macro/
Industry
9.39%
4.16%
Business
FY 2013
11.85%
7.15%
12.64%
7.78%
Market
Prospects
FY 2014
1.01
2.20
1.31
Tax Burden
Interest Burden %
Operating Profit
Margin %
Asset Turnover
Leverage
ROE %
FY 2011 FY 2012 FY 2013 FY 2014
48.24% 48.24% 54.00% 62.51%
90.20% 87.90% 85.64% 87.64%
5.37%
6.20%
6.13%
8.17%
0.58
2.27
3.08%
0.84
4.20
9.25%
1.35
3.69
14.13%
1.29
3.85
22.31%
FY 2014
18.53%
8.91%
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
ASSUMPTIONS
2%
$ in Millions
Historical
2012
2011
Operating Revenue:
Total Containers (Hawaii Containers)
140,000.00
Growth %
Total Containers (China Containers)
59,000.00
Growth %
Total Containers (Guam Containers)
15,200.00
Growth %
Total Containers (Micro/South Pacific Containers)
Growth %
Total Containers All
Growth %
Total Hawaii Automobiles
Growth %
Estimated Revenue per unit (in dollars)
Growth %
Alaska
Oceanic transportation revenue
Growth %
Logistics Revenue
Growth %
Total Revenue
Growth %
Cost and Expenses
Operating costs
Equity in (income) loss of terminal joint venture
Selling, general and administrative
Interest expense
Income tax expense
Loss From Discontinued Operations (net of income taxes)
Intro
Macro/
Industry
214,200.00
81,000.00
$
4,797.50
2013
2014
Mean
Median
0.02
0
2015E
2016E
137,200.00 138,500.00
138,300.00
138,500.00
138,400.00
138,300.00 138,714.90
-2.00%
0.95%
-0.14%
-0.40%
-0.14%
0.00%
0.30%
60,000.00
61,300.00
62,000.00
60,575.00
60,650.00
64,418.00
66,865.88
1.69%
2.17%
1.14%
1.67%
1.69%
3.90%
3.80%
24,500.00
24,100.00
24,600.00
22,100.00
24,300.00
25,110.37
25,380.23
61.18%
-1.63%
2.07%
20.54%
2.07%
2.07%
1.07%
5,600.00
12,800.00
14,800.00
8,300.00
9,200.00
17,038.50
19,530.38
128.57%
15.63%
72.10%
72.10%
15.13%
14.63%
227,300.00 236,700.00
239,700.00
229,475.00
232,000.00
244,866.87 250,491.40
6.12%
4.14%
1.27%
3.84%
4.14%
2.16%
2.30%
78,800.00
81,500.00
70,600.00
77,975.00
79,900.00
67,619.77
67,470.13
-2.72%
3.43%
-13.37%
-4.22%
-2.72%
-4.22%
-0.22%
$ 5,017.08 $ 4,979.60 $ 5,143.95 $ 4,984.53 $ 4,998.34 $ 5,349.71 $ 5,510.20 $
4.58%
-0.75%
3.30%
2.38%
3.30%
4.00%
3.00%
1,076.20
386.40
1,462.60
87.52%
-0.59%
7.69%
-0.53%
-39.85%
-0.79%
Business
1,189.80
10.56%
370.20
-4.19%
1,560.00
6.66%
1,229.40
3.33%
407.80
10.16%
1,637.20
4.95%
1,278.40
3.99%
435.80
6.87%
1,714.20
4.70%
1,193.45
5.96%
400.05
4.28%
1,593.50
5.44%
1,209.60
3.99%
397.10
6.87%
1,598.60
4.95%
1,355.18
6.01%
463.85
6.44%
1,819.03
6.12%
1,426.73
5.28%
493.70
5.86%
1,920.43
5.57%
85.78%
-0.21%
7.68%
-0.75%
-35.40%
-0.39%
85.65%
0.12%
8.10%
-0.88%
-38.82%
0.00%
83.63%
-0.39%
8.59%
-1.01%
-37.49%
0.00%
85.64%
-0.26%
8.02%
-0.79%
-37.89%
-0.30%
85.71%
-0.30%
7.90%
-0.81%
-38.15%
-0.20%
85.13%
-0.26%
8.02%
-1.01%
-40.00%
0.00%
85.13%
-0.26%
8.02%
-1.01%
-40.00%
0.00%
Market
Prospects
Financial
Analysis
Financial
Projection
0
Projected
2017E
0
0
2018E
2019E
139,117.17
139,464.97
139,813.63
0.29%
0.25%
0.25%
69,339.92
72,182.86
75,070.17
3.70%
4.10%
4.00%
25,652.99
25,928.68
26,207.33
1.07%
1.07%
1.07%
22,289.05
25,325.93
28,649.96
14.13%
13.63%
13.13%
256,399.13
262,902.43
269,741.09
2.36%
2.54%
2.60%
67,995.52
69,204.96
71,127.96
0.78%
1.78%
2.78%
5,675.50 $ 5,845.77 $ 6,021.14
3.00%
3.00%
3.00%
330.00
330.00
330.00
1,833.43
1,917.44
2,007.68
28.51%
4.58%
4.71%
522.62
612.42
679.06
17.18%
10.88%
7.79%
2,356.06
2,529.86
2,686.75
22.68%
7.38%
6.20%
85.13%
-0.26%
8.02%
-1.01%
-40.00%
0.00%
Valuation
85.13%
-0.26%
8.02%
-1.01%
-40.00%
0.00%
85.13%
-0.26%
8.02%
-1.01%
-40.00%
0.00%
Recomme
ndation
DCF with Horizon Acquisition
CAPM
Risk-Free Rate
Market Risk Premium
2-Year Beta
2.00%
6.00%
1.01
CAPM Cost of Equity
8.06%
Matson Inc.
DCF
Weighted Average Cost of Capital
Market Value of Equity
73.59% $ 1,750.94
Share Price
40.4
Fully Diluted Shares Outstanding
43.34
Debt
26.41%
628.30
Cost of Debt After Tax
Cost of Equity
CAPM Cost of Equity
MATX Realized Return
2.01%
9.07%
8.06%
28.23%
Tax rate
WACC
Business Risk Premium
Discount Rate
40.00%
7.20%
2.00%
9.20%
Intro
Macro/
Industry
Business
95.00%
5.00%
1
EBIT
Less: Taxes
Plus: Depreciation
Less: Capital Expenditures
Changes in Net Working Capital
Free Cash Flow
Present Value
Discount Rate
Terminal Growth Rate
Enterprise Value
Less: Debt
Market Capitalization
Shares outstanding
Share Price
Market
Prospects
Financial
Analysis
2015E
130
(52)
82
(63)
(232)
(136)
(124)
2
3
4
5
5
2016E 2017E 2018E 2019E Terminal
137
168
180
191
(55)
(67)
(72)
(77)
86
106
113
120
(66)
(79)
(85)
(89)
33
36
36
36
135
163
173
182
3,025
113
125
122
117
1,948
9.20%
3.00%
2,301
(628)
1,673
43.39
$ 38.56
Financial
Projection
Valuation
Recomme
ndation
Matson Comparables
Comparable Companies (Shipping)
Name
Matson Inc
Neptune Orient
Clarkson PLC.
The Hub Group
International Shipholding
P/E
P/TangBV EV/EBITDA EV/REVENUE Market Cap
24.79
5.36
8.33
1.10 $ 1,800.00
0.00
1.40
20.91
0.74 $ 2,680.00
24.73
3.62
13.78
2.09 $
676.14
26.23
4.25
10.15
0.39 $ 1,370.00
0.00
0.36
9.61
1.06 $
86.40
Comparable Companies (Logistics)
Name
Matson Inc
Ryder Systems
Radiant Logistics
Uti Worldwide
Expeditors International
P/E
P/TangBV EV/EBITDA EV/REVENUE Market Cap
24.79
5.36
8.33
1.10 $ 1,800.00
22.82
3.69
5.83
1.43 $ 5,030.00
55.33
0.00
16.45
0.54 $
200.07
0.00
16.53
73.04
0.35 $
972.23
23.75
4.70
12.08
1.19 $ 8,710.00
Source: Capital IQ
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Weights and Values
Trading Multiples (Shipping)
Company Weights (Shipping)
Neptune Orient
Clarkson PLC.
The Hub Group
International Shipholding
25%
15%
50%
10%
P/E
P/TBv
EV/EBITDA
EV/Revenue
25.48
3.05
13.33
0.80
Company Weights (Logistics)
Trading Multiples (Logistics)
Ryder Systems
Radiant Logistics
Uti Worldwide
Expeditors International
P/E
P/TBv
EV/EBITDA
EV/Revenue
30%
10%
50%
10%
Share Price (Shipping)
Multiple Weights (Shipping)
P/E
P/TBv
EV/EBITDA
EV/Revenue
P/E
P/TBv
EV/EBITDA
EV/Revenue
10%
40%
30%
20%
Multiple Weights (Logistics)
P/E
P/TBv
EV/EBITDA
EV/Revenue
Intro
Business
41.53
23.51
53.80
22.98
Share Price (Logistics)
30%
15%
15%
40%
Macro/
Industry
33.627
8.659
15.53
0.777
P/E
P/TBv
EV/EBITDA
EV/Revenue
Market
Prospects
Financial
Analysis
54.81
66.65
64.10
22.09
Financial
Projection
Valuation
Recomme
ndation
Valuation
Final Prices
Shipping
Logistics
Shipping Weight
Logistics Weight
Final Value:
Intro
Macro/
Industry
Business
$ 34.29
$ 44.89
74.58%
25.42%
$ 36.99
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Recommendation
Comps
Valuation
$36.99
DCF
Valuation
Strengths:
• Low competition due to Jones Act
• Strong growth between the U.S. China
market
• High market share
$38.56
Current
Stock
Price
$41.44
Weaknesses:
• Uncertainty due to Horizon Line’s
acquisition
• Highly dependent on the Jones Act
• Price is overvalued
Add To Watch List
Intro
Macro/
Industry
Business
Market
Prospects
Financial
Analysis
Financial
Projection
Valuation
Recomme
ndation
Q&A