1H22 performance is in line with our expectations
The company announced 1H22 results: the income in the first half of the year was 7.51 billion yuan, an increase of 22.89% over the same period last year; the net profit returned to the mother was 160 million yuan, corresponding to 0.03 yuan per share, down 70.8% from the same period last year, which was consistent with the previous forecast (forecast range of 1.1-180 million yuan), in line with our expectations; corresponding to 2Q22 realized revenue of 4.04 billion yuan, an increase of 32.8% over the same period last year and 16.0% over the previous year The net profit of returning to the mother was 134 million yuan, down 33.4% from the same period last year and up 434.7% from the previous month. From a business point of view, foreign trade oil transportation achieved loss reduction, 1H22 foreign trade oil fleet achieved income of 3.95 billion yuan, an increase of 45.0% over the same period last year, oil tanker transport gross profit of-430 million yuan, year-on-year loss reduction of 100 million yuan, although the first half of the VLCC market performance was low, but under the influence of the situation in Russia and Ukraine, the profit of foreign trade small and medium-sized fleet increased compared with the same period last year, thus making up for some losses Domestic trade oil transportation is relatively weak. 1H22 achieved revenue of 2.95 billion yuan, an increase of 6.6% over the same period last year, and a transportation gross profit margin of 24.2%, a decrease in 7.8ppt over the same period last year, mainly due to the decline in domestic trade oil transport demand in the first half of the year.
Trend of development
In the long run, the certainty of supply-side optimization is strong, and the growth rate of transport capacity is expected to decline in the next two years. On the one hand, VLCC orders are limited. So far, VLCC orders account for only 4.5% of existing capacity, which has fallen to the lowest level since 1997, and new capacity will be limited in the next two years (Clarkson forecasts supply growth of 3.7% this year and 3.3% next year, respectively). On the other hand, the clearance of the stock of ships is expected to accelerate. By July 2022, the average age of the global VLCC is 10.48 years, and the proportion of deadweight tonnage capacity of VLCC with an age of more than 15 years has reached 29.2%. We believe that under the restrictions of environmental protection policies, the dismantling of old ships is expected to accelerate, thus further reducing the growth of transport capacity in the next two years.
We believe that the share price of shipping companies can be regarded as a call option for potential optimization of fundamentals in the future. The long-term logical certainty of oil cycle recovery is enhanced, verification is still in its early stages, and short-term attention needs to be paid to the matching of expectations and fundamentals. VLCC rates have continued to rise since late June, benefiting from the recovery in global crude oil demand, the release of strategic reserves by the US and expectations of increased demand for oil shipments under the US-Iraq negotiations. Looking back, we need to pay attention to the sustainability of US oil exports and the release pace of potential demand increases (such as the progress of negotiations on the Iranian nuclear deal, Russian crude oil production changes and route reconstruction following the imposition of sanctions).
Profit forecast and valuation
Taking into account the cyclical recovery, we raised our profit forecasts for 2022 and 2023 by 12% and 19% to 1.31 billion yuan and 3.59 billion yuan. The current A share price corresponds to 2.4 times / 2.2 times book value in 2023.
The current H share price corresponds to a price-to-book ratio of 0.8 times / 0.8 times in 2023. A shares maintain an outperform industry rating, and as the recovery is certain to improve and valuations rise, we raise our target price by 67% to 15.67 yuan, corresponding to 2.5 pesos 2.3 times 2022x2023 market-to-market ratio, which has 3% upside compared to the current share price. H shares maintain outperform industry ratings, and we raise our target price by 58% to HK $8.03, corresponding to 1.00.9 times 2022x2023 market-net ratio, which has 30% upside compared to the current share price.
Risk
The macroeconomic downturn has led to a decline in crude oil demand, poor progress in Iran negotiations and production cuts in OPEC+ countries.