Incident Overview

On March 30, COSCO HIKO released its 2022 annual performance report. The company achieved revenue of 1,752 billion yuan for the full year of 2022, an increase of 2.62% over the previous year. It achieved net profit of 182 million yuan, an increase of 16.05% over the previous year, and net profit of non-return mother was 161 million yuan, an increase of 28.97% over the previous year.

The annual performance is in line with expectations, and smart shipping is growing rapidly

On the revenue side, the company achieved revenue of 1,752 billion yuan in 2022, an increase of 2.62% over the previous year. The revenue for Q4 2022 was 427 million yuan, a decrease of 14.5% over the previous year. The main components: 1) The company took the initiative to upgrade and transform its business, and its high-quality business grew dramatically. Among them, smart shipping revenue increased 46.70% year on year; 2) Actively expanded business in different regions. Among them, operating revenue in South China increased 87.59% year on year, and revenue in North China increased 31.22% year on year.

On the profit side, the company achieved net profit of 182 million yuan to the mother in 2022, an increase of 16% over the previous year, and the net profit of the mother in Q4 2022 was 0.2 billion yuan, a decrease of 23% over the previous year. Main factors: 1) Looking at the whole year, the cost side was well controlled, with sales expenses, management expenses, and R&D expenses falling 6.43%, 5.08%, and 15.23%, respectively; 2) Looking at Q4 alone, the release of the epidemic affected the receipt process of some of the company's businesses to a certain extent, and this part of the business is expected to confirm revenue on H1.

On the gross margin side, the company's gross margin reached 20.72% for the full year of 2022, an increase of 1.10% over the previous year. It mainly benefited from the company's continuous innovation drive, active expansion of business in various regions, and a 22.61% year-on-year reduction in raw material costs.

Building a second growth curve for smart shipping and the rapid development of multiple product lines in the industry, 2020 and 2021 were affected by 1) the global epidemic; 2) the sharp rise in commodity prices; 3) rising labor costs. The freight index continued to rise. Profits of major maritime shipping companies increased 186% and 800% year-on-year respectively in 2021, which is expected to drive an increase in investment in the digitization of shipping. At the company level, the company's smart shipping business increased 47% year-on-year in 2022. Based on years of industry experience and the business foundation of COSCO SHIPPING Group, the company currently has multi-scenario products in the smart shipping field, such as shipping management platforms, crew management platforms, digital operation platforms for container asset management, cloud computing platforms, and financial management solutions.

Among them, the “Ship TV Bao” platform became one of the first products listed on the Shanghai Data Exchange. It has gathered 30.2 billion pieces of data on ships, ports, routes, shipping schedules, meteorology, etc., to form more than 67 million dynamic records of ship navigation behavior throughout the life cycle of ships, providing 730 million API queries; the shipping management platform has been launched to serve nearly 900 ships.

Focus on data algorithms to consolidate digital capabilities

In 2022, the company continued to accelerate the exploration of potential data elements. In terms of smart shipping, the shipping data center has newly integrated 8 categories of new data, including liner schedules and coastal ship files, to further enhance the depth and breadth of analysis and mining. In 2022, the company developed hundreds of various algorithm models.

The ship situation sensing system has completed the development of four functional modules: situation prediction, AR enhanced observation, intelligent collision avoidance, and assisted berthing. In terms of smart transportation, the smart highway cloud platform road network management key technology research project has completed the main research and development work and has been fully applied to highways throughout Qinghai Province and Ningxia. Build an ITSN Xinchuang ecosystem, a comprehensive toll platform for highways, and complete mutual certification with domestic server, computer, database, and operating system products such as Huawei, Feiteng, Kirin, and Dameng, which won bids.

Investment advice

We expect the company to achieve revenue of 21.29/26.12/3181 billion yuan respectively in 2023-2025, an increase of 22%/23%/22% over the previous year; to achieve net profit of 2,29/291/364 million yuan, an increase of 26%/27%/25% over the previous year, maintaining the “buy” rating.

Risk warning

1) R&D breakthroughs fell short of expectations; 2) policy support fell short of expectations; 3) product delivery fell short of expectations.