Event: China ship Leasing issued the 2023 half-yearly results announcement. The company's revenue in the first half of the year was HK $1.74 billion, up 11.35% from a year earlier, and its net profit was HK $1.086 billion, up 24.3% from a year earlier. According to the company announcement, the company paid an interim dividend of HK $0.03 per share, which was in line with expectations.
The asset structure of the fleet is of high quality, and the asset value of the shipbuilding business cycle continues to rise: as of the first half of 2023, the company has a total of 155 ships, of which 124 are in operation and 31 are under construction, with an average age of 3.8 years. The average remaining lease life of the current one-year lease is 6.8 years. In terms of fleet structure changes, 8 newly signed ships were signed in the first half of the year, 4 were delivered and 9 were repurchased in advance. According to Clarkson, new shipbuilding prices continued to climb this year. As of September 2023, the new shipbuilding price index reached 175.37 points, up 8% from the beginning of the year, the second-hand ship price index rose 2% from the beginning of the year, and the value of the company's assets continued to rise on the upside of the shipbuilding boom.
The effect of both cost control and risk control is prominent, the increase of capital cost is lower than the market benchmark, and the sound operation ability is outstanding. According to Wind statistics, since March 2023, the Fed has entered the channel of raising interest rates rapidly, and the target range of the federal funds rate has been adjusted to 5.25%, 5.5% on July 27, 2023, the highest level in 2022. The company continues to strengthen cash flow control, keeping the average cost of interest-bearing liabilities at 3.4% in the first half of 2023, an increase in 1pct compared with the same period last year, and the cost of capital is lower than the market benchmark. The company issued a new 1 billion RMB coupon 3.3% panda bond in March 2023, the lowest AAA-rated panda bond issued in the same period since 2023.
Taking advantage of the Hong Kong dollar interest rate advantage in 2023, the company will convert some US dollar short-term floating rate loans into Hong Kong dollar short-term floating rate loans, saving HK $66.86 million in financial costs. As of June 30, 2023, the rate of corporate credit non-performing assets was US $23.73 million, accounting for 0.93% of the total credit assets, and the provision coverage rate was 297%. The effect of cost control and risk control is prominent.
We will actively implement the dividend policy and continue to give back to shareholders with high dividend yields. Thanks to the diversification of ship types to hedge against track risks and flexible operational management, the company's ROE (diluted) in the first half of the year was 8.96%, up 11.6% from the same period last year. Since the company went public, the dividend payout rate has remained above 40%, and the dividend payout has continued to be high to shareholders.
Maintain the core recommendation logic: shipping scene demeanor improved, the main leasing industry ushered in the golden era. Financial leasing benefits from active ship transactions, and the demand for financial leasing is expected to increase significantly. Operating leasing business benefits from the increase in ship rental and asset prices. Compared with financial leasing, the operating leasing term is shorter and the salvage risk is borne by the company. When the original lease expires, the rent of the new lease is expected to rise sharply. The market price of the company's ships is expected to be higher than the book value, and the disposal income is expected to increase significantly.
Shipping momentum continues to transmit, order delivery is accelerated, long-term financing costs are locked, and the "buy" rating is maintained. It is estimated that the company's net return profit from 2023 to 2025 is HK $20.66 billion, corresponding to a PE of 3.3pm, 0.48x PB, 0.63x PB, and 11.3% dividend yield higher than comparable companies. Considering the improvement of shipping cycle, the ROE hub of Chinese ship chartering companies is expected to continue to improve. Maintain a "buy" rating.
Risk tips: shipping cycle prosperity is not as expected; ship asset prices decline; foreign exchange rate fluctuations; financial charterer breach of contract.