The company announced its 2023 annual results:
1) Net profit to mother: Net profit attributable to mother is expected to be 31.00-390 billion for the whole year, with a median of 3.5 billion yuan, +140.2% year over year; Q4 is expected to achieve net profit to mother -6.1 billion to +190 million, -175.1% to -77.2% YoY, -167.6% to -79.5% month-on-month, median of -210 million, -126.2% YoY and -123.6% month-on-month.
2) Net profit without deduction: Net profit without return to mother is expected to be achieved for the whole year, +180.37% to +237.89% year over year, with a median value of 4.3 billion yuan, +209.2% year over year; Q4 is expected to achieve net profit of 5.8-1.38 billion, -23.1 to +83.7% year over year, and -36.2% to +52.3% month on month, median value of 980 million, +30.3% year over month.
3) Gross profit: The annual gross profit of foreign trade tankers was about RMB 4.2 billion, an increase of about 188% over last year. The company's domestic oil tanker business remains stable, and is expected to achieve gross profit of about RMB 1.5 billion for the whole year, an increase of about 17.9% over the previous year; the LNG transportation business stabilized, contributing about RMB 790 million to the company's net profit to mother, an increase of about 18.4% over last year.
4) Accrued impairment: During the year, the company obtained revenue from disposal of old ships, etc., and deducted suspension losses caused by unconventional ship repairs; potential investment losses due to changes in the operating environment and restrictions of operation of overseas joint ventures; anticipated losses from third party claims, etc., and the estimated net non-operating loss for the whole year was RMB 750 million.
Q4 freight rates declined year-on-year, with VLCC-TCE averaging about US$44,300 per day, +52.7% month-on-month; Suez, Afula, and finished tankers averaging TCE of 5.73, 5.99, 331,000 USD/day, -29.6%, -34.2%, -34.9% YoY, +96.6%, +129.2%, +23.9%. The average value of VLCC-TCE for the full year of 2023 was about US$43,200 per day, +80.9% YoY; of these, the VLCC TD3CTCE (Middle East-China) averaged about US$36,000/day, +113% YoY. The increase in demand for Chinese oil in 2023 and the contribution of crude oil exports from the US Gulf and Brazil to long-haul routes were the main drivers of the rise in VLCC freight rates in the first half of 2023. The average TCE for Suez, Aphra, and finished tankers was 5.35, 5.55, and 32,300 US dollars/day, +20.7%, -0.9%, and -15.1% compared with the same period last year.
Focus on geographical conflicts or driving up shipping asset risk premiums and freight spillover effects under the influence of the Red Sea. As the Red Sea conflict continues to unfold, the impact may gradually spread to oil tankers. 1) We recommend focusing on the consumption of effective capacity by detours. 2) From the interpretation of emotions and investment leads, we believe that the market will have a strong learning effect. 3) We understand that mainstream shippers and shipping companies should be risk-averse, and detours (partial detours) are the most likely option. The recent choice fits this line of reasoning. 4) Attention should be paid to geographical conflicts or driving up risk premiums on shipping assets. 5) As time passes, and in line with the current environment, we further suggest that attention should be paid to the influence of the Red Sea to drive freight spillover effects. From December 15, '23 to January 21, '24, there was a marked increase in tanker-related routes. The Suez tanker TD6 (Black Sea/Mediterranean route) TCE rose 55.2% year on year, the Afula tanker TD 25 (US Bay - UK/Continental), and TD 19 (Turkey-France) TCE rose 133.4%, 73.8%, and 87.9% year on year, respectively, and VLCC (Middle East Gulf - Continental) TCE rose 48.6% year on year.
Investment advice: 1) Profit forecast: Based on current market demand and freight rate levels, we adjusted the 2023-2025 profit forecast to achieve net profit of 35.6 billion, 65.0, and 7.22 billion yuan (the original forecast was 52.3, 71.9, and 7.91 billion yuan), corresponding to EPS of 0.75, 1.36, and 1.51 yuan, corresponding to current PE of 18, 10, and 9 times.
2) As a highly flexible variety, oil transportation has a clear supply logic. Once the demand boom increases, freight rate flexibility is huge. We maintain the original valuation method and give a target price of 19 yuan, which is expected to be 41% of the current price, and maintain a “recommended” rating.
Risk warning: peak season demand falls short of expectations, geopolitical events, etc.