Event: intercontinental Shipping released its mid-2023 report, with operating income of US $119 million in the first half of the year, down 42.2% from the same period last year, and adjusted net profit of US $12.7 million, down 65.8% from the same period last year. The overall performance is in line with expectations.

The performance is in line with expectations, and the company has high resilience to control the ship business under the impact of weak bulk freight rates. In the first half of 2023, global bulk trade was weak and bulk freight rates were under pressure. According to Clarkson, 1H2023's daily average BDI fell to about 1157 points, down 49.2% from 1H2022's daily average of about 2279 points. The company's revenue from the shipping services division in the first half of the year fell to US $97 million, down 45.7% from the same period last year, of which the revenue from ship control fell from US $55 million in the first half of 2022 to about US $45 million, a decrease of about 17.7% compared with the same period last year, which was lower than the market benchmark. The company is resilient under market pressure.

The decline in ship management service business is mainly due to the decline in the number of the fleet, labor costs and management costs did not decline with the decline in income. In the first half of 2023, the number of contracted vessels in charge of which the company charged higher service fees decreased, and the revenue from ship management services was US $22 million, down 19.9% from the same period last year. At the same time, due to the reduction of contract management ship and pick-up ship dispatch business resulting in a decrease in profits and an increase in labor costs and management expenses, the pre-income tax profit of the ship management service business decreased by 71.4% to about US $1.2 million compared with the same period last year, with a profit margin of about 5.5%. A decrease of 9.8 percentage points.

Control the increase of ship size and open the space of income elasticity. According to the company announcement, as of June 30, 2023, the company controls a total of 24 ships with a comprehensive transport capacity of 1.32 million deadweight tons, with an average age of 7.3 years. Among them, 4 new ships were delivered in the first half of the year, with an additional capacity of 321000 deadweight tons, 2 ships were withdrawn, and the number of fleets increased by 2 in the first half of the year, with a total capacity of 260000 deadweight tons. Two new ships are expected to be delivered in the second half of the year, totaling 98500 deadweight tons. In addition, in the first half of the year, the company announced the acquisition of two 62000 dwt general cargo ships, two 42200 dwt bulk carriers and one 13500 dwt general cargo ship to control the increase of the fleet size and open the flexible space.

Long-term supply: the capacity of the shipyard is tight, the berth is occupied by high value-added orders of containers and LNG, and the bulk shipyard is less attractive. As of September 30, 2023, bulk carriers accounted for 8% of the existing fleet, and the long-term supply was at a low level. Recently, the price of new shipbuilding is rising, the demand for containers and LNG ships is increasing, and orders occupy the berth, so it is difficult for dry bulk carriers to compete with high value-added ships. The last round of shipbuilding cycle production capacity is relatively full, the number of active shipyards continues to decline, the head shipyard berth has been scheduled to 2026, production capacity is tight.

The price of the ship rose, the replacement cost of the bulk fleet rose, and the company's performance benefited from the upward price of dry bulk cargo. According to Clarksons, as of September 30, 2023, the new bulk carrier price index rose 5.8% from the beginning of the year, and the second-hand bulk carrier price index rose 4.99% from the beginning of the year. Ship prices rose, corresponding to higher replacement costs for shipping companies. As of October 20, 2023, the daily average of BDI in the second half of the year was 1336 points, up 15% from the daily average of 1157 points in the first half of the year. The company's performance benefited from the upward price of dry bulk freight.

Performance resilience test, maintain the "buy" rating. It is estimated that the company's net profit from 2023 to 2025 will be $5490, $6161 and $65.35 million, respectively. Of this total, control ships contributed $1535, $3665 and $30.38 million; chartered ships contributed $1491, $984,15.98 million; and ship management services contributed $1188, $1137 and $15.24 million. Referring to the average PE of shipping companies, the shipping business of chartered ships is given 9 times PE, and the ship management business is 9 times PE,2023. The annual profit of $26.79 million corresponds to a valuation of $240 million. Considering the substantial appreciation of ship assets since 2021, the intercontinental shipping control capacity adopts the NAV valuation method to reconstruct the ship's net asset value of US $290 million. Under the segment valuation method, taking into account the liquidity of port shares, the reconstructed ship's net asset value is discounted by 0.7 times, and the intercontinental shipping is reasonably valued at US $440 million, maintaining the "buy" rating.

Risk hint: the shipping cycle of dry bulk cargo is less than expected, the demand for oil products imported from Europe and the United States is lower than expected, and the price of ship assets is falling.