The 2021 results are in line with the forecast
Haifeng International announced its 2021 results. The company achieved revenue of 3,012 million US dollars, a year-on-year increase of 78.8%, and net profit of 1,163 million US dollars, corresponding to a profit of 0.43 US dollars per share, an increase of 230.7% over the previous year, in line with the company's net profit forecast of 1,150 million US dollars. The average freight rate rose 52% year on year, and container freight volume increased 20% year on year. Gross profit increased by about 196.5% year on year from about US$445 million, gross margin was 43.8%, up 17.4 ppt year on year. We think this was mainly due to the company's delivery of cheaper and more energy-efficient small ships, control of the cost per TEU, and the sharp rise in freight rates during the 4Q21 peak season. Coupled with additional dividends and a proposed final dividend, the company's payout rate in 2021 reached 95%.
Development trends
Earnings are expected to remain strong in 2022, and certainty is gradually increasing. We indicated in our previous report that investors may be waiting for more signs of increased performance in 2022. Considering that supply chain efficiency is still low and port congestion continues, we expect spot freight rates to remain high in 2022, and contract prices are expected to rise accordingly when the contract is renewed. Although chartering costs may also rise sharply in 2022, considering that the company is expected to deliver 36 new ships in 2022-2024, we expect the company to reduce charters or smaller boats with lower rental costs, thereby limiting costs to a manageable level, which favors annual performance growth.
The market is still divided over 2023-2024 demand trends and new ship deliveries. Even considering the potential increase in ship scrapping, Alphaliner expects the size of the global fleet to grow 8% year over year in 2023. New carbon emission reduction regulations such as the energy efficiency index EEXI and the carbon emissions index CII will be implemented starting in 2023, which may cause old ships to slow down and be decommissioned early. Considering that the order/capacity ratio of 3000 standard small ships is lower than 8,000 standard ships (12% vs. 31%), we expect that the supply-demand relationship in the market where Haifeng International is located is expected to improve, providing balanced supply and demand conditions for Haifeng International. However, it remains to be seen whether the resulting loss of effective capacity will support freight rates
Profit forecasting and valuation
Due to higher freight rates and demand assumptions, we raised our 2022-2023 earnings forecast by 9.4% and 14.6% to $1,452 million and $1,193 million. Currently, Haifeng International is trading 7.7 times and 9.4 times the price-earnings ratio for 2022 and 2023. We maintain an outperforming industry rating and target price of HK$38.60, corresponding to 9.1 times the 2022 price-earnings ratio and 11.1 times the 2023 price-earnings ratio. There is room for 18.6% upward compared to the current stock price.
risks
Port congestion is reduced or new ship delivery frees up capacity.