The shipping boom declined from a high level in '23; however, the Red Sea disrupted the sharp rebound in freight rates, and may boost profits in '24, COSCO Maritime Control announced 23-year results: 1) operating revenue of 175.45 billion yuan, down 55.1% year on year; 2) Net profit to mother was 23.86 billion yuan, down 78.2% year on year. Among them, net profit for 4Q23 was 1.79 billion yuan, down 85.5%/67.5% yoy. The sharp decline in profits was mainly due to a fall in high freight rates. The company announced a year-end dividend of 0.23 yuan per share, corresponding to a dividend rate of 50% for the whole year. Since the beginning of the year, due to the Red Sea incident, the global supply chain has once again faced disruptions. Freight rates have stopped falling and rebounded, which is expected to boost profits for 24 years.
We raised our 24/25 net profit forecast by 60%/3% to 24.6 billion/16.1 billion yuan, adding a 26-year forecast of 23.3 billion yuan. Based on 1.0x/0.8x 24E PB, the A/H target price was raised 6%/24% to HK$13.6/11.5 (the average PB value of the company's three-year history was reduced by 0.5 standard deviations, and the valuation was mainly due to increased supply growth in the medium to long term in the industry) to maintain “buying”.
Annual traffic volume declined year-on-year, and 4Q US line traffic improved
Global inflation was high in 2023, export demand was weak, and demand for container transportation continued to decline. For the full year of '23, the company's container traffic fell 3.5% year on year, with the US line/European cargo volume falling 5.5%/4.0% year on year. The volume of goods stopped falling and rebounded in 4Q23. The company's traffic volume increased 3.8%/0.6% year over month, with the US line growing 12.5%/0.7% year over month; European line was still weak, and traffic volume fell 2.1%/6.1% year over month. Looking ahead to 2024, we believe that the marginal improvement in global macro-demand is expected to drive cargo volume on European and American routes. We expect the company's transportation volume to grow 5% year over year in '24.
Supply chain disruptions were mitigated and demand was weak, and the company's average revenue per box fell back to 930 US dollars in 23, down 58.3% year on year; among them, American/European line single box revenue fell 64.5%/66.3% year on year to 1,346/1,072 US dollars. In 2023, overseas inflation was high, the manufacturing industry inventory removal cycle continued, compounded by an increase in shipping capacity and a continuous decline in freight rates, which dragged down the company's profits.
According to data from the Shanghai Shipping Exchange, the average value of Shanghai Export Container Freight Index (SCFI) /China Export Container Freight Rate (CCFI) fell 70.5%/66.4% year on year in 2023.
Improved overseas demand was compounded by disturbances caused by the Red Sea incident. The year-to-date freight rate performance was strong. Since the beginning of '24, the impact of the improvement in overseas export demand compounded by the Red Sea incident has continued, and freight rates have remained high. From January 1 to March 27, the Shanghai Export Container Freight Index (SCFI) increased by 109.2% year on year, mainly due to ship detours caused by the Red Sea conflict, which greatly boosted freight prices. We believe that the impact or continuation of the Red Sea incident is expected to improve the shipping supply and demand structure, and the company's shipping business is expected to achieve year-on-year growth in 24. In the medium to long term, the shipping industry is still facing a large number of new ship deliveries. According to Alphaliner's forecast, the global shipping market supply will grow 9.7%/5.2% in 24/25 (demand growth rate 2.9%/2.5%).
Risk warning: 1) global economic recession; 2) geopolitical risk; 3) freight rates are lower than expected; 4) effective supply is higher than expected; 5) the competitive pattern worsens.