In the medium to long term, the hazardous chemicals transportation industry has high barriers to competition, and the capacity of the industry is strictly controlled; the company is deeply bound to major customers, and the business is highly stable; the company also says that Andelf Energy has strong growth potential.

Domestic chemical shipping market leader, deeply tied to major customers. Shenghang Co., Ltd. specializes in water transportation of liquid chemicals and refined oil products along the domestic coast, in the middle and lower reaches of the Yangtze River, and is one of the leading domestic liquid chemical shipping companies. The company has formed good cooperative relationships with large petrochemical manufacturers such as Sinopec, CNPC, Sinochem Group, Hengli Petrochemical, and Zhejiang Petrochemical. Chemical transportation revenue accounts for 91% of the company's main business (COA accounts for 70-80%, gross margin has stabilized at 40% in recent years), and oil transportation revenue accounts for 8%. As of the first three quarters of '23, due to the downturn in the chemical industry chain, the company's net profit to mother was 117 million yuan, a year-on-year decrease of 13.47%. As of December 2023, the company controlled a total of 38 domestic and foreign trade vessels, including 28 domestic chemical tankers, 5 refined oil tankers, and 5 foreign trade chemical vessels, with a total capacity of 288,900 tons. In the first half of 2023, the company achieved 2.4883 million tons of domestic liquid chemical waterway traffic, an increase of 4.48% over the same period last year; achieved 309,500 tons of liquid ammonia, and its service capacity and competitiveness level in the field of liquid ammonia road transport business continued to improve.

The domestic petrochemical industry chain is booming, and the supply side of chemical shipping has been limited for a long time. Demand side: Volume and price in the chemical transportation industry remain relatively stable; liquid ammonia transportation volume is growing rapidly under environmental pressure. In the first half of 2023, due to geopolitics and fluctuations in international oil prices, petrochemical companies' consumption was weak, but the operating rate of major products improved marginally in the second half of the year. In the context of global carbon reduction, 2023 is still expected to be a period of concentrated production of new synthetic ammonia production capacity, while some backward production capacity has basically been eliminated, and transportation demand for market supplies is expected to increase accordingly. Supply side: The industry is on the franchise circuit, and production capacity investment faces high barriers. As the Ministry of Transport's regulatory requirements for the coastal chemical shipping industry become more strict, it is expected that the trend of strict supply-side restrictions in the industry will continue in the future. Due to the company's excellent management team, good control over transportation safety, and continuous deepening cooperation with major customers, the supply of capacity has grown rapidly, forming a virtuous cycle of development. The total capacity of the company in the past 3 years was 14.37/20.1/288,900 DWT, respectively, and the CAGR reached 41.8%.

Investment advice: In the medium to long term, the liquid hazardous chemicals shipping industry has high barriers to competition. At the same time, demand for petrochemical terminals has recovered from the bottom, and the concentration of leading companies continues to increase; Shenghang Co., Ltd. has strong safety management capabilities, and can continue to expand capacity in an orderly manner through mergers and acquisitions, and has strong growth potential. We expect the company's revenue to increase 36%, 24%, and 19% year-on-year in 2023-2025; net profit to mother will be 1.66, 2.37 million yuan, and 290 million yuan, respectively, up -2%, 43%, and 23% year-on-year respectively. The corresponding profit PE for 2024 is 9.2x, the valuation is relatively low, and the rating of “Highly Recommended” is maintained.

Risk warning: macroeconomic decline, ship delivery falling short of expectations, decline in business performance of major customers, etc.