1H23 profit fell from a high level year-on-year, and cargo volume and freight rates in the second half of the year are expected to improve month-on-month by Haifeng International released 1H23 results: 1) Homo net profit fell 73.4% year on year to 300 million US dollars; 2) container traffic volume fell 3.8% year on year; 3) single box revenue fell 46.1% year on year to 667.5 US dollars/TEU. The sharp decline in profit was mainly due to the high boom in the shipping market in 2020-1H22 and the unusually high level of freight rates, which led to a high base for the same period last year. Since 2H22, along with high overseas inflation, Europe and the US entering an inventory removal cycle, and supply chain turbulence mitigation, high container freight rates have fallen sharply. Looking ahead to the second half of the year, driven by seasonal peak season demand and the current low freight base, we expect volume and freight rates to improve month-on-month in the second half of the year. Considering the performance of the first half of the year and macroeconomic uncertainty, we lowered our 23/24/25 net profit forecast by 28%/28%/26% to 650 million/9.1 billion/ 1.07 billion US dollars; based on 9.0x 2023E PE, we lowered the target price by 26% to HK$17.1 (three-year PE average in the company's history) to maintain the “purchase”.
Freight prices in the Asian regional market were sluggish. The company's single-box revenue and volume performance were superior to the industry average in the first half of the year. High overseas inflation compounded inventory removal, market demand was sluggish, and freight rates fell sharply year on year. Among them, overall demand in the Southeast Asian market is weaker than that of developed markets, and the decline in freight rates exceeds that of Europe and America. According to data from the Shanghai Shipping Exchange, the average value of the 1H23 Southeast Asia Container Freight Index (SEAFI) fell 86.3% year on year, while the Shanghai Export Container Freight Index (SCFI) fell 78.3% year on year during the same period. At 1H23, Haifeng International's single box freight rate fell 46.1% year on year. The performance was superior to the industry average, highlighting the company's operational resilience. In terms of volume, 1H23 Haifeng's international cargo volume fell 3.8% year on year, which is less than the industry level (according to CTS data, global container shipping volume fell 4.3% year on year, with cargo volume within the Asian region falling 5.8% year on year; Asia to North America/Asia to Europe showed a year-on-year performance of -18.3%/+2.3%).
The peak season in Asia in the fourth quarter is expected to boost cargo volume and freight rates
Since July, the European and American markets have been driven by seasonal peak season demand from superimposed shipping companies to effectively control capacity investment, and freight rates have shown an upward trend. As of August 16, Shanghai's export freight rates to Europe, the US and the West of the US and the East US have risen 21%/43%/30% from June 30. The peak season for the Asian regional market is usually in the fourth quarter. Considering the current low tariff base and peak season demand, we expect the 3Q/4Q Asian market's freight rate to show a quarterly upward trend.
The overall market was under pressure in '23, and the supply and demand structure in the Asian region is expected to improve marginally in '24. Under the double pressure of weak demand and new ship deliveries, the market is under pressure. Looking ahead to 2024, we expect the supply and demand structure of the Asian regional market to improve marginally. According to Alphaliner's forecast, global container ship supply increased 8.5%/8.8% year-on-year in 23/24, of which the supply of small and medium-sized ships applicable to the Asian region increased 5.9%/4.7% year-on-year (less than 5,000 TEU ship types). On the demand side, Alphaliner predicts that global shipping demand will grow 1.4%/2.2% year over year in 23/24, with demand within Asia expected to increase 0.5%/3.9% year over year. We expect that the Asian regional freight rate performance may be superior to the European and American markets in '24.
Risk warning: freight rates are lower than our expectations; cargo volume growth is lower than our expectations; policy risks that have a negative impact on the shipping industry.