The Zhitong Finance App learned that Guotai Junan released a research report stating that it covered China Ship Leasing (03877) for the first time and gave it an “additional” rating. The estimated net profit for 2023-25 is HK$20/22/2.4 billion; the dividend rate is expected to be 9%. If the dividend rate is raised from 36% to 50%, the dividend rate will rise to 13%. The company is the first shipyard ship leasing company in Greater China. It relies on the China Shipbuilding Group to build long-term core competitiveness with a “ship understanding” gene. Countercyclical shipbuilding establishes a cost advantage, and enjoys asset appreciation and self-operating profit flexibility in the procyclical cycle. Considering that platforms will tighten and ship prices will rise in the next few years, or that companies will be careful to place orders, it will benefit from the rise in oil transportation, and the dividend rate is expected to increase.

Guotai Junan's main views are as follows:

Countercyclical shipbuilding lays the foundation for the company's long-term cost advantage and profit.

The company was listed on the Hong Kong stock market in 2019, seizing the bottom of the shipping cycle and low ship prices to build a large number of ships, establishing a long-term cost advantage. At the same time, the company has long attached importance to optimizing and balancing the asset structure of the fleet, and stable long-term rental profits. The company has a fleet of 129 ships, with an average age of only 3.8 years. Environmental supervision risks are limited. Among them, high-value-added vessels such as LNG/LPG account for more than 40%. The rest of the bulk carriers/liquid carriers/special ships/container ships are mainly small ships and have strong circulation. With 31 ships in hand, the growth rate of the fleet size will slow down in the future.

Procyclical operations, asset appreciation, and profits continued or exceeded expectations.

In 2021-22, the shipping industry boomed and ushered in a wave of orders. Since then, the oil transportation industry has boomed, and leasing levels and asset prices have risen markedly. The benefits of the company's long-term rental business are lagging behind, while the replacement value of assets has increased significantly. At the same time, in the procyclical phase, companies actively carry out short-term and immediate operations through self-employment and joint ventures, demonstrating the rare profitability of the leasing industry. According to the 2023 Interim Report, the company has 26 self-operated/joint ventures, contributing about 30% of net profit, including 8 MR and 6 LR1 refined-product tankers. The oil transportation industry's boom is expected to rise and continue in the next few years, and the company's profits may continue to exceed expectations.

Orders may be placed cautiously in the next few years, and the dividend rate is expected to increase.

The company's order pace has been slowing down since 2022. Apart from shrinking demand for financial leasing and increased competition in the industry, it is also due to the tightening of platforms and high ship prices in the next few years. Since the company went public, the dividend rate has declined year by year, and the capital expenditure cycle is behind it. As on-hand orders are gradually delivered and orders may continue to be carefully placed in the next few years, the bank expects the company's dividend rate to increase. The company's PE in 2024 is only 4.2 times, and the dividend rate is expected to be 9%. If the dividend rate increases from 36% to 50%, the dividend rate will increase to 13%.

Risk warning: risk of default, economic fluctuations, interest rate and exchange rate risk, geographical situation, etc.