Incidents:

On March 20, 2024, Xingtong Co., Ltd. released its 2023 annual report:

In 2023, the company achieved operating income of 1,237 billion yuan, a year-on-year increase of 57.66%, completed net profit of 255 million yuan, an increase of 22.28% over the previous year, and completed deducted net profit of 237 million yuan, an increase of 20.51% over the previous year.

Among them, the company achieved operating income of 331 million yuan in 2023Q4, up 46.97% year on year and 17.33% month on month; completed net profit of 70 million yuan, up 41.91% year on year and 55.69% month on month; net profit deducted from non-return to mother was 62 million yuan, up 28.16% year on year and 49.41% month on month.

Investment highlights:

Endogenous epitaxial development has developed rapidly. In 2023, the company achieved net profit of 255 million yuan to mother. In 2023, the company completed transportation volume of liquid dangerous goods in bulk, an increase of 36.32% over the previous year, and achieved operating income of 1,237 billion yuan, an increase of 57.66% over the previous year, mainly due to increased domestic trade revenue, the development of international transportation business, and the acquisition of Xingtong Wanbang.

However, due to the company's newly launched foreign trade transportation business and the newly acquired subsidiary Xingtong Wanbangla, which lowered the company's gross margin level, the company's financial expenses rose sharply. As a result, the company completed net profit of 255 million yuan to mother in 2023, an increase of 22.28% over the previous year, and completed deducted net profit of 237 million yuan, an increase of 20.51% over the previous year.

Domestic trade demand continues to recover, and rising foreign trade tariffs brought about performance flexibility in 2023. Affected by the macroeconomy, some downstream refinery equipment was overhauled, and the operating rate of chemical products declined, which in turn led to a short-term decline in industry demand. 2023Q4, as refinery equipment maintenance was completed and construction started, the chemical operating rate gradually picked up. Under the resonance of demand restoration and capacity expansion, the company completed net profit of 70 million yuan, an increase of 41.91% year-on-year, and 55.69% month-on-month. Entering 2024, industry demand remained strong. Taking PX, the main transportation category, as an example, the average operating rate in January-January 2024 was 85.59%, an increase of 10.11pcts over the previous year. This is the highest operating rate level in the past five years, and domestic trade demand continues to recover.

Meanwhile, due to the Red Sea incident, foreign trade chemical freight rates are at a historically high level. Take the Singapore-Rotterdam 5000 mt rate as an example. The freight rate on March 15, 2024 was 197 US dollars/ton, up 17.26% from the same period last year. The rise in freight rates brought great performance flexibility to the company's foreign trade business.

Domestic and foreign trade capacity continues to expand. We are optimistic about the company's long-term value and growth opportunities. In 2023, the company will put into operation 6 new ships, with a total capacity of 84,400 DWT, including 2 domestic trade ships, with a total capacity of 14,000 DWT; and 4 foreign trade ships, with a total capacity of 70,400 DWT. Meanwhile, in 2023, the company started construction of 7 ships, including 5 foreign trade ships and 2 domestic trade ships, with a capacity of 101,000 DWT, and domestic and foreign trade capacity continued to expand. In the long run, there is still a trend of tightening regulations in the domestic trade liquid dangerous goods transportation industry, and overall supply restrictions and consumption upgrades in compliance requirements. As an industry leader, Xingtong Co., Ltd. is expected to benefit from this. At the same time, as a high-quality support for domestic refining and chemical “going global”, the foreign trade market space of Xingtong Co., Ltd. is gradually opening up, and we are optimistic about the company's long-term value and growth opportunities.

The profit forecast and investment rating take into account the recovery of industry sentiment. We adjusted the profit forecast. It is estimated that the operating income of Xingtong Co., Ltd. for 2024-2026 will be 1,565 million yuan, 1,922 million yuan and 2,344 million yuan, respectively, and net profit to mother will be 313 million yuan, 391 million yuan and 491 million yuan, respectively. The corresponding PE is 12.64 times, 10.10 times and 8.04 times, respectively. The industry's prosperity recovered, and the leaders benefited the most and maintained a “buy” rating.

Risks suggest that demand growth falls short of expectations; heavy asset mergers and acquisitions fall short of expectations; capacity expansion falls short of expectations; policy changes; mergers and acquisitions risks; chemical transportation safety risks; and uncertainty about additional capacity.