1Q23 freight rates and cargo volume declined year-on-year, and profits are expected to improve quarterly from 2Q23. Haifeng International announced 1Q23 operating data: 1) Single box revenue fell 42% /14% year-on-year to 722 USD/TEU; 2) Cargo volume fell 5%/22% year-on-year/month-on-month to 630,000 TEU; 3) Total operating revenue fell 41%/30% year-on-year to 6.1 million US dollars. The year-on-year/month-on-month decline in freight rates and cargo volume was mainly due to weak external demand and the gradual easing of global supply chain disturbances, and global container freight rates fell sharply from a high of 2H22. Looking ahead to '23, we expect freight rates and cargo volumes in the Asian regional market to improve quarterly starting in the second quarter as China recovers after the epidemic and demand in the Southeast Asian market gradually picks up. We maintain our 23/24/25 net profit forecast of 900 million/1.27 billion/1.45 billion US dollars and the target price of HK$23.1 billion (based on 8.8x 2023 EPE, the average PE value in the company's history for three years), maintaining the “buy” rating.
Benefiting from industrial chain transfer+RCEP, demand and freight rates in the Southeast Asian market rebounded ahead of Europe and the US in 2022. Affected by factors such as inflation and geopolitical conflicts, global economic growth was weak, consumption in Europe and the US weakened, high freight rates fell sharply, and the industry was under pressure. Since this year, benefiting from China's post-epidemic recovery+industrial chain transfer and RCEP policy promotion, demand and freight rates in the Southeast Asian market have bottomed out in Europe and the US. According to data from the Shanghai Shipping Exchange, as of April 24, the Southeast Asia Freight Index (SEAFI) rose 61% from the January low and the Euro/Western United State/East US Line rose 0.1%/36%/25% respectively from the February low.
The company has excellent management capabilities, and its performance is superior to the industry average. Haifeng International is deeply involved in the Asian market and has a perfect network layout and integrated logistics service model by sea and land, so the company's profit performance is superior to the industry average. According to Clarksons data, the average container freight rate in the Asian region in 1Q23 fell 64%/16% year on year vs. corporate freight rate fell 42%/14% year on month. In terms of cost, benefiting from the high proportion of the company's own ships and lower ship rental costs than peers, we expect the company to hedge downside risks in some industries through the cost advantages and operation and management efficiency of its own ships.
Ship supply in the Asian region increased 5.9%/4.7% year on year in 23/24 According to Alphaliner's forecast, global container ship supply increased 8.3%/8.9% year on year in 23/24. Among them, supply for small and medium-sized ships in the Asian region increased 5.9%/4.7% year on year. On the demand side, Alphaliner predicts global shipping demand to increase 1.4%/2.2% year over year in 23/24, with demand within Asia expected to increase 1.3%/3.9% year over year. The supply and demand structure of the regional market is superior to that of the offshore market, and we believe that Haifeng International's profits will remain resilient. Our 2023/2024/2025 net profit forecast is based on revenue of 729/780/800 USD/TEU per box, with year-on-year performance of -34%/+7%/+3%; cargo volume of 3.48 million/3.7 million/3.91 million TEU, up 6.6%/6.3%/5.8% year on year.
Risk warning: 1) freight rates are lower than our expectations; 2) cargo volume growth is lower than our expectations; 3) policy risks that have a negative impact on the shipping industry.