Incidents:

Shenghang Co., Ltd. released the first quarter report of 2023:

In Q1 2023, Shenghang Co., Ltd. achieved operating income of 292 million yuan, an increase of 61.84% over the previous year; net profit after deducting non-return to the mother was 46 million yuan, up 23.49% year on year; gross margin was 32.41%, down 4.23 pcts year on year; net interest rate was 16.11%, down 5.61 pcts year on year.

Key points of investment:

High revenue growth, quarterly improvement in profit

2023Q1, the company achieved revenue of 292 million yuan, up 61.84% year on year and 15.44% month on month; net profit after deducting non-return to the mother was 46 million yuan, up 23.49% year on year and 32.25% month on month. The expansion of supply-side companies' capacity capacity was the main driving factor for the high year-on-year increase in revenue. Although the start of demand-side refinery was basically repaired month-on-month compared to 2022Q4, the overall level was low. At the same time, management and financial expenses both increased due to scale expansion. Taken together, Q1 achieved a net interest rate of 16.11%, a year-on-year decrease of 5.61 pcts, an increase of 1.91 pcts over the previous year.

Production capacity expansion is accelerating, and laying out foreign trade opens up business boundaries

In 2022, the company controlled a total of 30 domestic and foreign trade vessels, an increase of 8 over 2021, with a total capacity of 201,000 DWT, an increase of 39.87% over the previous year. The company's growth logic is still being implemented. In the domestic trade segment, the company has a total of 24 domestic chemical tankers, an increase of 5 over the previous year, with a total capacity of 155,500 tons. Expansion continues to accelerate. In terms of foreign trade, two foreign trade chemical vessels purchased by the company's wholly-owned subsidiary were put into operation one after another at the end of 2022. Under the high foreign trade boom, the company went deep blue and is expected to fully enjoy the upward cyclical dividend.

Driven by demand recovery and capacity expansion, the company's undervalued and high growth is attractive. Looking ahead to 2023, domestic trade demand will begin to recover, and the operating rate of major chemicals will continue to rise. At the same time, the “Senghanghua 6”, “Senghanghua 9” and “Senghanghua 10” were all put into operation at the end of 2022, and the company still has plans to expand capacity in 2023. It is optimistic that the additional capacity will be rapidly digested in a context where supply is in short supply. The recovery in demand is compounded by the expansion of production capacity, and the company's profits are expected to rise quarterly under two-wheel drive. According to our profit forecast for 2023, the current stock price is only 16.10 times that of PE in 2023, making investment opportunities for undervalued high-growth companies attractive.

Profit forecasts and investment ratings We expect Shenghang Co., Ltd.'s revenue for 2023-2025 to be 1,086 million yuan, 1,348 million yuan and 1,634 million yuan respectively, while the net profit of the mother is 232 million yuan, 321 million yuan and 421 million yuan respectively. The corresponding PE for 2023-2025 will be 16.10 times, 11.61 times and 887 times respectively. The company's growth logic continues, optimistic about the company's performance growth opportunities throughout the year, and maintains the “buy” rating.

Risks indicate policy changes, demand growth falling short of expectations, capacity expansion falling short of expectations, mergers and acquisitions risks, and chemical transportation safety risks.