Incident: China Southern Petroleum released its 2023 annual report: the company achieved annual revenue of 6.197 billion yuan, a year-on-year decrease of 1.08%; realized net profit to mother of 1,557 billion yuan, an increase of 8.55% over the previous year; and basic earnings per share were 0.32 yuan/share.
Revenue fell 1.08%, and the oil transportation business led to an increase in gross profit, contributing to the increase in the company's net profit to mother. 1) Annual revenue of 6.197 billion yuan, a year-on-year decrease of 1.08%. Among them, the core business revenue of oil transportation business was 5.224 billion yuan, up 3.42% year on year; revenue from chemical transportation business was 438 million yuan, up 3.81% year on year; and revenue from ethylene transportation business was 180 million yuan, up 8.43% year on year. 2) The company's operating costs decreased by 5.06% year-on-year, mainly due to a 0.36% decrease in oil transportation costs and a 55.31% decrease in fuel supply business costs. 3) The company's gross profit increased 8.20% year over year, and net profit to mother increased 8.55% year over year.
The company realizes the strategy of flexible management of domestic and foreign trade and actively responds to changes in market freight rates. The company's annual foreign trade revenue was 3,512 billion yuan, up 1.87% year on year; domestic trade revenue was 2,681 billion yuan, down 4.62% year on year. Mainly because the company flexibly dispatched domestic trade ships to foreign trade refined oil products during the period of high freight rates in the 2023Q1-3 quarter.
The company's three expenses totaled 172 million yuan, a year-on-year decrease of 4.93%. Among them, sales expenses were 37 million yuan, up 3.12% year on year; management expenses were 97 million yuan, up 3.35% year on year; and financial expenses were 38 million yuan, down 25.80% year on year.
The overall performance of the foreign trade oil transportation market declined compared to 2022. The trend of the international refined oil transportation market has been high and low throughout the year, and fluctuations have intensified. The crude oil transportation performance is slightly superior to that of refined oil products. In 2023, in terms of refined oil transportation, BCTI averaged 801 points, down 35.7% year on year; MR-TC7 routes averaged 26212 US dollars/day, down 23.74% year on year; in terms of crude oil transportation, BDTI averaged 1,083 points, down 23.03% year on year.
The company actively repurchases, demonstrating the company's confidence. On December 25, 2023, the company reviewed and passed the “Proposal on Repurchasing Shares through Centralized Auction Transactions”: The company plans to use its own capital of not less than RMB 10,000 million and not more than RMB 150 million to buy back the company's shares through centralized bidding transactions. The repurchase price of the shares shall not exceed RMB 4.20 yuan/share (inclusive). As of February 27, 2024, the share repurchase ratio of the company reached 1.0495% of the total share capital, using a total capital of 150 million yuan (excluding transaction fees).
Optimistic about the freight rate opportunities that are expected to be brought about by the continuing widening gap in the growth rate between shipping supply and demand for refined oil products, and maintain the “buy” rating. We expect earnings per share for 2024-2026 to be 0.42/0.47/0.51, respectively, and the corresponding PE is 7.6/6.8/6.3 times. We consider that the growth gap between supply and demand for refined oil shipping continues to widen, which is expected to lead to an increase in freight rates, and that China Merchants CNPC's own fleet is relatively large and has high performance flexibility, maintaining a “buy” rating.
Risk warning: The shipping demand for refined oil products falls short of expectations, the dismantling of old ships falls short of expectations, and the risk of oil price fluctuations.