The shipping market declined to a high level in '23; since the beginning of the year, the Red Sea incident disrupted, and freight rates stopped falling and rebounded, Haifeng International announced its 2023 results: 1) net profit of 530 million US dollars, down 72.7% year on year; 2) single box revenue (freight rate) fell 43.3% year on year to 623.3 US dollars/TEU; 3) traffic volume fell 1.1% year on year to 3.22 million TEU. Among them, 4Q23 single box revenue fell 29.0% year on year, but increased 6.7% month on month; transportation volume increased 4.0%/24.7% year over month. The sharp decline in profits throughout the year was mainly due to post-pandemic global supply chain disruptions mitigating compounding demand from overseas inflation and suppressing demand, and freight rates fell to a high level. The company announced a year-end dividend of HK$0.5 per share, corresponding to a full year dividend rate of 70%. Since the beginning of the year, due to the Red Sea incident, the global supply chain has once again faced disturbances, and freight rates have stopped falling and rebounded. Looking at the medium to long term, considering that the industry added a lot of capacity in 24-25 and the global macro still facing uncertainty, we lowered our 24/25 net profit forecast by 26%/34% to 570 million/61 million US dollars, and added the 26-year forecast of 720 million US dollars. Based on 8.7x 2024EPE, the target price was raised by 1% to HK$14.3 (average PE in the company's three-year history) to maintain “buying”.
Weak overseas demand and increased market capacity suppressed freight rates in '23, but 4Q freight rates improved month-on-month in 2023. Overseas inflation was high, manufacturing inventory removal cycles continued, compounded by an increase in ship capacity, and freight rates continued to fall. According to data from the Shanghai Shipping Exchange, the average value of the Southeast Asia Container Freight Index (SEAFI) fell 79.6% year on year in 2023. Among them, the fourth quarter benefited from the seasonal peak season and the low base of freight rates in the first three quarters, and freight rates improved month-on-month. In 4Q23, the average SEAFI index increased 53.4% month-on-month, and 4Q23's single-box revenue rose 6.7% month-on-month to 599.1 USD/TEU; transportation volume increased 24.7% month-on-month to 929,000 TEU.
Since this year, rising demand in the Southeast Asian market has been compounded by turbulence in the Red Sea. Since the beginning of '24, overseas demand has shown signs of recovery. Combined with the impact of the Red Sea incident, the impact of the Red Sea incident has gradually spread to other markets, and freight rates within the Asian region have been strong. From January 1 to March 7, the average SEAFI index rose 82.8% year over year and 46.7% month on month. We expect the company's 1Q23 single-box revenue to rise further month-on-month.
Profit is expected to continue growing year-on-year in 24. The supply and demand in the regional market is superior to that of the European and American markets in the short term, benefiting from rising freight rates driven by the Red Sea incident. We expect the company's net profit to grow on a 24-year basis by the end of 23. We expect the company's single-box freight rate to drop 1.9% year-on-year and freight volume to increase 9.9% year-on-year for the full year of '24. In the medium to long term, the shipping industry is facing a large number of new ship deliveries. According to Alphaliner data, supply in the global shipping market increased 9.7%/5.2% year on year in 24/25 (mainly large ships) vs demand increased 3.8%/3.1%; among them, container ship supply in the Asian market increased 5.7%/1.4% year on year vs demand increased 3.7%/3.2%, and regional market supply and demand were superior to European and American markets.
Risk warning: 1) freight rates are lower than our expectations; 2) volume growth is lower than our expectations; 3) policy risks that have a negative impact on the shipping industry; 4) geopolitical risks.