3Q23 performance is in line with our expectations
The company announced the results for the first three quarters: revenue of 134.56 billion yuan, -57.5%; net profit of 22.07 billion yuan, corresponding to profit per share of 1.36 yuan, -77.3%; corresponding to the third quarter, revenue of 427.01 billion yuan, -59.6%/-4.0% over the same period, and net profit of 5.51 billion yuan, -83.0/ -41.6% over the same period, in line with our expectations. We believe that the month-on-month decline in the third quarter was due, on the one hand, to the further month-on-month decline in the third quarter (the 3Q23CCFI tariff index fell 6.7% month-on-month), and on the other hand, due to the high base of exchange earnings brought about by the appreciation of the US dollar in the second quarter, and the high oil prices in the third quarter put some pressure on company costs (costs fell 46.8% month-on-month).
In 3Q23, the company's consolidated traffic volume continued to grow month-on-month, and the port sector contributed steadily to profit. The net profit of the 3Q23 company's container and shipping business was 4.78 billion yuan, down 48% from the previous month. The company's foreign trade/container volume increased steadily in the third quarter, and the company's foreign trade/container volume was +1.5%/+2.0% month-on-month. Among them, container volume on routes within the Asian region (including Australia) grew rapidly, 3Q23 increased 8.2% month-on-month, and single-box revenue from foreign trade routes was 979 US dollars/TEU, a decrease of 7.2% over the previous month; the port business contributed stable profit. COSCO Shipping Port achieved a profit of US$78 million in the third quarter, a month-on-month increase of 14.5%, and total container terminal throughput A month-on-month increase of 3.9 %.
Development trends
Supply and delivery pressure is high in 2024, and we believe that freight prices will be under pressure for the next two years. According to Alphaliner data, as of October, on-hand container ship orders accounted for 27.9% of capacity, yet the demand side is still relatively weak. According to the CICC Macro Group, US inventory removal may continue until the second quarter of next year. According to iFind, the Eurozone manufacturing PMI continued its downward trend in October. According to Clarksons's forecast, the industry supply growth rate in 2023-2024 is higher than the demand growth rate of 7.6ppts/2.7 ppts. We believe that the next two years will be under pressure on freight prices.
Consolidation companies have plenty of cash, and the investment value is evident, but it is necessary to observe how the industry responds. On the one hand, whether various shipbuilding companies on the supply side can hedge against this year's and next year's ship delivery pressure through ship scrapping, deceleration, and idle capacity is a key factor in determining whether the industry can maintain profitability and long-term value. The observation indicators are the bottom support level of freight prices, the number and speed of ship scrapping. As of 3Q23, the company has cash of 199 billion yuan. If the company maintains a 50% dividend rate throughout the year, we expect the 2023/2024 dividend rate for the company's A shares to be 8.4%/3.8%, and the 2023/2024 dividend rate for H shares to be 11.4%/5.3%. Hong Kong stock dividends are still attractive.
Profit forecasting and valuation
Since freight prices for the fourth quarter were slightly lower than expected, net profit for 2023 and 2024 was lowered by 9.1% and 10.3% to 26.4 billion yuan and 14.8 billion yuan. The current A-share price corresponds to 6.0 times /10.6 times the 2024 price-earnings ratio, and the H-share price corresponds to 4.4 times /7.5 times the 2023/2024 price-earnings ratio. Maintaining an outperforming industry rating, the price of A shares was lowered by 7.5% to $11.8, the price of H shares was lowered by 7.4% to HK$10, A shares corresponding to 7.2 times /12.9 times the 2023/2024 price-earnings ratio, and H shares corresponding to 5.5 times /9.4 times the 2023/2024 price-earnings ratio. A/H shares have room to rise by 21.4%/25.6% from the current stock price, respectively.
risks
The growth rate of the global economy is declining, new ships are being delivered faster, and ship scrapping falls short of expectations.