Maintain an increase in holdings rating. Large 2023Q4 accruals affected performance, bucked the trend and stabilized profits after deduction, which was in line with expectations. The oil transportation industry's capacity utilization rate is already close to the threshold. Supply and demand will continue to improve in the next few years, and the rise and continuation of the boom may exceed expectations. Consider lowering the 2023 net profit forecast to $3.5 billion (previously $4.6) billion, maintaining the 2024-25 billion yuan net profit forecast. Maintain the target price of 23.54 yuan.
The 2023Q4 deduction of non-net profit is in line with expectations. The company's performance report predicts net profit of 31-3.9 billion yuan in 2023; deducted non-net profit of 3.9 to 4.7 billion yuan, an increase of 180%-238% over the previous year, in line with our expectations. The company's net non-operating loss in 2023 was 750 million yuan. 1) Revenue from disposal of old ships is about 400 million yuan; 2) Due to changes in the business environment of overseas joint ventures, potential investment losses due to operating restrictions, and anticipated losses from third party claims, etc., it is estimated that 23Q4 will be significantly reduced in value or close to 1.2 billion yuan. It is estimated that the company deducted non-net profit of 6-1.4 billion yuan in 23Q4, and the profit center remained stable against the trend.
The peak season was not strong due to fluctuations in oil prices, and the company bucked the trend and made steady profits in 23Q4. Production cuts in the Middle East and high oil prices curbed trade in the second half of 2023. Among them, although oil prices fell back in Q4, trade recovery was slow and the peak season was not strong, and market expectations were sufficient. VLCC TCE 23Q4 declined slightly month-on-month, while the company's gross profit from foreign trade oil transportation remained basically flat month-on-month. Domestic oil transportation and LNG profits increased steadily in 2023.
The situation in the Red Sea is driving up small boat freight rates, once again verifying that the capacity utilization rate is close to the threshold. The recent escalation of the situation in the Red Sea and the high freight rates for small boats may help the company's off-season performance. More importantly, off-season freight rate flexibility will once again confirm that the oil transportation capacity utilization rate is close to the threshold, that is, it will be very sensitive to future improvements in supply and demand. We believe that supply and demand in the oil transportation industry will continue to improve in the next few years, and the rise and continuation of the boom will exceed expectations. The company's profit flexibility is sufficient, and it will fully benefit.
Risk warning. Economic fluctuations, implementation of the new environmental policy falls short of expectations, geographical situation, safety incidents.