1Q24 The company's operating data performance was weaker than the increase in market freight rates, and it is expected to increase quarterly compared to the previous quarter
Pacific Shipping released 1Q24 operating data: the average daily freight rate of the company's convenient ships/ultra-convenient ships fell 18.5%/0.1% year on year (average market freight rate increased 26%/27% year on year during the same period). The 1Q company's freight rate performance was weaker than that of the market owner. Due to the traditional low season in the first quarter, the company locked in more leases ahead of schedule, which dragged down the company's freight rate level. As of April 18, the company has secured 84%/96% leases for 2Q convenient ships/ultra-convenient vessels, and the locked freight rate increased 11%/7% month-on-month. Looking ahead to 24 years, we believe that the improving supply and demand pattern in the dry shipping market is compounded by the effects of Red Sea detours and Panama Canal congestion, and freight rates are expected to rise significantly year-on-year.
Based on the company's 1H24 fixed freight rate, we assume that the freight rate will be lowered by 28%/29%/25% to the 24/25/26 net profit forecast to 200 million/250 million/270 million US dollars; based on 1.0x 24E PB (average PB average value in the three years of the company's history), the target price was lowered by 3% to HK$2.9 million to maintain the “purchase”.
2Q freight rates increased month-on-month; benefiting from the traditional peak season in the second half of the year, freight rates are expected to rise further in 1Q24. The average daily freight rates for the company's convenient ships/ultra-portable ships were 11,050/13,610 US dollars per day, respectively, down 18.5%/0.1% year on year, and 13.5%/17.2% month-on-month. According to the company's announcement, as of April 18, the company locked in the 2Q24 average daily freight rate of 12,290/14,610 US dollars per day, respectively. The locked ratio was 84%/96%, up 11.2%/7.3% month-on-month, and the year-on-year performance was -2%/+6%. Looking ahead to 2H24, benefiting from the effects of the traditional peak season combined with Red Sea detours and Panama Canal congestion, we expect dry freight rates to rise further month-on-month, boosting the company's profits.
Global demand for small bulk goods has rebounded, and demand for bulk bulk goods is still resilient. According to the company's announcement, global iron ore/coal/food/small bulk bulk shipping volumes were +2.0%/-1.0%/+3.0% year-on-year respectively in 1Q24. With the exception of coal, all other categories of shipping volume increased year over year.
Among them, the increase in small bulk cargo volume mainly benefited from the increase in bauxite and salt shipments and the increase in Chinese steel exports; the increase in grain traffic was mainly due to the increase in grain exports from Argentina, Ukraine, and the United States; and China's demand for iron ore and coal is resilient. However, the slight decline in coal traffic was mainly due to China's imposition of tariffs on Russian coal imports and Indonesia's imposition of tariffs on coal exports.
The share repurchase plan shows the company's confidence; the medium- to long-term global bulk market supply and demand are improving. According to the company's announcement, the company plans to implement an equity repurchase plan from April 25 to December 31, with a maximum repurchase amount of no more than HK$310 million. The repurchase initiative highlights the company's confidence in the market and the company's profit prospects. In the medium to long term, benefiting from the improving supply and demand pattern, the global bulk market is booming. According to Clarksons data, global bulk carrier (bulk+small) supply increased 2.7%/1.7% year over year versus 2.1%/1.3% in demand in 24/25. Among them, the global supply of small bulk carriers increased 3.7%/2.4% year-on-year in 24/25 versus 4.0%/3.3% in demand. The company focuses on the small bulk transportation market, and profits are expected to pick up year over year in 24.
Risk warning: Freight rates are lower than expected, supply is higher than expected, economic growth is lower than expected, geopolitical risks, natural disasters.