2022 performance is in line with our expectations
The company announced 2022 results: revenue of $4.113 billion, an increase of 36.5% over the same period last year; net profit of $1.944 billion, corresponding to diluted earnings of $0.72 per share, an increase of 67.2% over the same period last year. 4Q22's container volume is + 18% month-on-month. Due to the drop in freight rates, 4Q22's revenue per container has dropped by 24%, but it is still better than the overall freight level of the industry. We believe that this is due to the company's stable Japan-South Korea routes and a higher proportion of long-term agreement contracts. The company's dividend rate in 2022 is 70%, with a total dividend of US $0.51 per share and a dividend yield of 21.7%, which is attractive.
Trend of development
The growth rate of industry supply is higher than demand, and the overall freight rate of the collection and transportation industry is under pressure in 2023. Up to now, the SCFI composite index has basically returned to the pre-epidemic level. According to the forecast of Clarksons, the year-on-year change in demand in 2023 and 2024 is-2.2% and 3.3%, and the change in supply is + 6.6% and 5.7% respectively. We believe that due to the weak overall demand and excess ship capacity on the supply side, the freight rate in 2023 will be under pressure.
The new capacity in the Asian region is limited, and the dismantling of small boats is accelerated, which may support freight rates. On March 3 this year, the SCFI Southeast Asia / Japan / Korea Freight Index changed by + 19.6% / 45.1% / 32.0% compared with 2019, while intra-Asian freight rates are relatively strong. The supply of transport capacity in the Asian region is better, the order / capacity ratio of small boats is lower than that of large ships (February 23, < 3000TEU is 13% vs. > 8000TEU is 38%), and the recent disassembly of small boats has accelerated. Since 2H22, the total number of small boats under 3000TEU has totaled 324,000 TEU, while 1H22 and 2H21 have combined to dismantle 520TEU and 2090TEU respectively. From the demand side, according to the IMF forecast, Southeast Asia and China are expected to grow better than Europe and the United States in 2023, which is expected to provide some support for transport volume. Therefore, we expect that the intra-Asian market (mainly small boats) may perform better because of the relative balance of supply and demand. However, we believe that it remains to be seen whether the reduced effective capacity due to limited new ship orders can support high-level freight rates.
The value of the company appears, waiting for the demand side to prove that the dividend yield under long-term investment is attractive. The fleet structure of the company has been gradually optimized. In 2022, the company delivered 20 new ships, and this year the company expects 20 ships to be delivered. We believe that the company uses its own new ships to replace leasing and old ships, which is conducive to future cost control and long-term development. The demand is subject to data verification. In addition, the company's cash and dividend rate remain high, with the company's cash reaching US $980 million at the end of 2022. If the company continues to maintain a 70% dividend rate in 2023, the dividend per share will be US $0.27, with a dividend yield of 11.2%, which has strong long-term investment value.
Profit forecast and valuation
Due to the downward rate of the industry, we cut our 2024 earnings forecast for 2023 Universe by 17.2% to $1.016 billion and $751 million, respectively. The current share price corresponds to 6.3x 2023p and 8.5x 2024p / e. Taking into account the cost-side improvement under the optimization of the fleet structure, as well as the high dividend level, we maintain an outperform industry rating and HK $21.6 per share price, corresponding to 7.4 times 2023 price-to-earnings ratio and 10.0 times 2024 price-to-earnings ratio, which is 17.6% higher than the current stock price.
Risk
Demand for transport and trade in the intra-Asian market was lower than expected; orders for new ships accumulated.