The decline in high single-box revenue dragged down 3Q profit. Freight prices and cargo volume are expected to stop falling in the fourth quarter and return to Haifeng International's operating data for the first three quarters: 1) Revenue fell 45.4% year on year to 1.77 billion US dollars; 2) Single box revenue (freight price) fell 47.1% year on year to 633 US dollars/TEU; 3) Transportation volume fell 3.1% year on year to 2.3 million TEUs. Among them, 3Q23 single box revenue fell 49.2% yoy/y/9.9%; transportation volume fell 1.6% yoy/13.0% month on month. The sharp year-on-year decline in cargo volume and freight rates was mainly due to a decline in high levels in the shipping market. The increase in ship supply compounded by high overseas inflation and the inventory removal cycle suppressed demand. Among them, 3Q was the low season for the Asian market, and cargo volume and freight prices declined further month-on-month. Looking ahead to the 4th quarter, we expect to be driven by the seasonal peak season and compounded by the low 3Q freight rate base, and cargo volume and freight rates are expected to stop falling and pick up month-on-month. Considering the low freight rates in the first three quarters and the remaining global macro uncertainty, we lowered our 23/24/25 net profit forecast by 15%/16%/15% to 550 million/760 million/92 million US dollars; based on 88x 2023EPE, we lowered the target price by 17% to HK$14.2 (average PE value for three years in the company's history) to maintain “buying”.
The high level of the shipping market declined. The weak spot freight/rental rent performance in the Asian market in the third quarter was affected by high overseas inflation, high interest rates, and the continued negative effects of inventory removal from the manufacturing industry. Weak demand in the global container shipping market compounded the easing of global supply chain disturbances after the epidemic. Ship supply increased, and freight prices fell sharply year-on-year. Among them, the third quarter was a seasonal off-season in the Asian market, further reducing freight rate performance. The average 3Q23 Southeast Asia Container Freight Index (SEAFI) fell 79.9%/22.2% year over year; the company's 3Q23 single box revenue was 562 US dollars/TEU, down 49.2%/9.9% year over year. In terms of the term rental market, the average 6-12 month rental rent for 1,000TEU vessels in the third quarter was 10,678 US dollars/day, down 64.7%/20.2% year on year.
Since September, freight rates in the Southeast Asian market have stopped falling and rebounded, and the peak season in the Asian market in the fourth quarter is expected to boost freight rates since September. Driven by the traditional fourth quarter peak season demand in the Asian market, Southeast Asian freight rates have stopped falling and rebounding. The average SEAFI index in September was +41.5%. During the same period, Shanghai exports to Europe/West America/East America spot freight rates were -23.7%/-4.5%/-13.9%; As of October 20, the latest AFSEI index rose 57.3% from the August low. We expect the company's single box revenue and cargo volume to rise sequentially in 4Q23, boosting the company's revenue and profit performance.
Focus on the Asian regional market and highlight the company's medium- to long-term competitive advantages
Haifeng International focuses on the Asian regional market. The supply and demand structure of its regional shipping market is superior to that of the ocean market (Europe, America, etc.), and the company's management resilience is superior to that of peers. According to Alphaliner's forecast, global container ship supply increased 8.2%/9.1% year on year in 23/24, of which the supply of small and medium-sized ships suitable for the Asian region increased 5.9%/4.7% year on year (less than 5,000 TEU types); global shipping demand increased 1.4%/2.2% year on year in 23/24, with demand within Asia expected to increase 0.7%/3.9% 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.