COSCO Marine Holdings (the “Company”)'s results for the first quarter of 2022 were in line with expectations. Due to rising contract freight rates and high freight rates under continued congestion, the company achieved revenue of RMB 105.530 billion, an increase of 62.7% over the previous year, which is basically in line with our and market expectations. Among them, shipping business revenue recorded a year-on-year increase of 63.5%, and terminal business revenue recorded a year-on-year increase of 20.9%. Despite a significant increase in costs, the sharp increase in single-box revenue caused gross margin to record 40.5%, up 7.3 percentage points from the previous year. The company's shareholders' net profit rose 78.7% year-on-year to RMB 27.617 billion. The corresponding net profit per share was RMB 1.72, in line with previous earnings forecasts and our expectations.

Freight prices remained flexible after a moderate decline, and the disruption of the transportation chain by the pandemic is expected to remain a major issue. There has been a marked contraction in the recent decline in freight rates. We believe that the current high freight rates will still be strongly supported by shipping congestion in the short term. As the Yangtze River Delta epidemic eases, the release of cargo volume may cause continued congestion on major routes and support freight rates. On the other hand, the contract freight rate signed by the company and the contract transportation ratio have increased significantly, and customer requirements for supply chain security are expected to support the sustainability of the company's profits in the medium term.

We reaffirm the “collected” investment rating and maintain the target price at HK$17.20. Our target price is equivalent to 2.2 times/3.9 times/6.6 times the 2022-2024 price-earnings ratio and 1.4 times/1.1 times/1.0 times the 2022-2024 net price-earnings ratio.