After the epidemic, the disturbance of the global supply chain alleviated and superimposed high overseas inflation suppressed export demand, and the collection and transportation boom fell.
COSCO Shipping Holdings released the first three quarters results: 1) operating income 134.56 billion yuan, down 57.5% from the same period last year; 2) return to the mother net profit of 22.07 billion yuan, down 77.3% from the same period last year. Of this total, the net profit of 3Q23 was 5.51 billion yuan, down 83.1% and 41.6% compared with the same period last year. Profit year-on-year / month-on-month decline is mainly due to the high demeanor of the global collection and transportation market during the epidemic, with high profits in the same period last year. Since 2H22, with the supply side gradually returning to normalization, high overseas inflation has suppressed export demand, and the volume of collected goods and freight rates have declined compared with the same period last year. Taking into account the performance of freight rates in the first three quarters and the uncertainty of the global macro economy, we reduce the freight rate assumption, corresponding to the annual net profit forecast for 23-24-25 23%, 46%, 38%, to 27 billion / 15.4 billion / 15.7 billion yuan. Based on 1.2x/0.8x 2023E PB, reduce the target price of Ahammer H by 10% to 12.8 yuan / HK $9.3 (the average PB over the three years of the company's history minus 1 standard deviation, the valuation discount is mainly due to the high decline in the container shipping market) and maintain the "buy".
In the seasonal peak season in the third quarter, the volume was the same as the same period last year, and the month-on-month improvement
3Q23, the company's container traffic was unchanged from a year earlier, up 2.0% from a month earlier. Among them, the cargo volume of trans-Pacific / European routes fell 1.1%, 0.3%, 4.4%, 3.0%, and 2.2%, 8.2%, respectively. 9M23, the company's cumulative container traffic fell 5.8% year-on-year, including a 10.4% year-on-year drop in trans-Pacific / Europe / Asia intra-regional cargo volume. In the medium to long term, considering the destocking in Europe and the United States or coming to an end, global container shipping volume is expected to bottom out and pick up. According to Alphaliner forecasts, global cargo volume will grow by 1.2 per cent in 2024 compared with the same period last year. 2.2 per cent.
Benefiting from the market's effective control of transport capacity, US freight rates rebounded in the third quarter, but European freight rates declined month-on-month. 3Q23's per-box freight rate fell 63.8% year-on-year and 7.7% month-on-month. Among them, the US line benefited from the industry leader's effective capacity control and superimposed seasonal peak season demand. The US line freight rate fell 69.0% year on year, but increased 6.4% compared with the same period last year. Due to the relatively high 1H23 freight rate, the freight rate of the European line fell by 70.1% year on year / month on month in the third quarter, respectively 8.3%. Looking forward to the fourth quarter, considering the current low freight rates on the European line, we expect that the industry leader may tighten the delivery capacity of the European line in order to push up the price of the European line, and the freight rate is expected to stop falling and rebounding from the previous quarter, while the US line is flat.
The cost per container fell in the first three quarters compared with the same period last year, and the advantage of scale partially offset the impact of the decline in freight rates and volume. 9M23's cost per container was 831 US dollars per TEU, down 41.1% from the same period last year, and its profit margin was 21.1% lower than the same period last year. Among them, the cost per box of 3Q23 is US $796per TEU, and the profit margin of EBIT is 15.7%. In the medium and long term, the global collection and transportation market has shown the characteristics of oligopoly, and the scale advantage of leading companies is significantly higher than that of small and medium-sized liner companies. As of October, the company ranks fourth in the world in terms of capacity, and reducing the cost per box through the advantage of scale is expected to partially offset the impact of the downturn in the industry.
Risk hints: 1) global economic recession; 2) geopolitical risks; 3) lower-than-expected freight rates; 4) higher-than-expected effective supply; 5) deterioration of competition pattern.