The company's recent situation
The company announced the 1Q24 business situation: the core business of the 1Q24 company, Xiaoling portable ships and super portable ships achieved TCE freight rates of 11,050 US dollars/day and 13,610 US dollars/day, respectively, with year-on-year declines of -18%/day, exceeding the market spot index of 540 US dollars/day and 1,300 US dollars/day respectively, mainly benefiting from the company's flexible business strategy and fleet structure with a high proportion of ships installing desulfurization towers. Among them, the installation of desulfurization towers contributed $30 per day and $940 per day of excess revenue for the company's Xiaoling Express Boat and Super Easy Ship respectively.
The announcement of the repurchase plan shows business confidence. The company announced that it intends to implement a repurchase plan starting from April 25, 2024 to December 31, 2024. The maximum repurchase capital is US$40 million (approximately HK$312 million). According to the closing price on April 18, the repurchase share will account for up to 2.45% of the company's issued shares. We believe that the company has a stable balance sheet and plenty of cash. As of the end of last year, the company's available working capital was 550 million US dollars, and the total loan amount was less than 300 million US dollars. The repurchase shows the company management's confidence in the company's operating capacity and growth prospects, but this repurchase plan still needs to be approved by the shareholders' meeting.
reviews
The supply growth rate is still limited, and the demand side may gradually improve, and the dry bulk market is expected to start an upward cycle. Affected by restrictions on traffic in the Red Sea and the Panama Canal, the effective capacity of dry bulk carriers declined, compounded by improvements in global economic activity in 2024. BSI was +25.6% year to date, and BHSI was +22.7% year over year. We believe that traffic restrictions in the Red Sea and Panama will continue until the second half of 2024, thus providing support for dry bulk freight prices. Looking backwards, as of April 2024, active orders for Xiaoling Bianship and Super Dragon Boat accounted for 10.2%/9.2% of capacity, respectively, while old ships aged 25 and over accounted for 4.4%/9.0% of capacity. According to Clarksons, in 2024/2025, the capacity of portable ships was +4.4%/+3.3%, and demand for small bulk cargo transportation was +4.0%/+3.3% year-on-year. Considering the slowdown in sailing speed under stricter environmental regulations and the increase in ship scrapping volume, the effective supply growth rate is expected to decline further. Small bulk goods Demand for transportation has increased, and the market is expected to start an upward cycle.
The company's fleet structure continues to be optimized, which is conducive to improving profitability. According to the company's announcement, 1Q24 sold a 20-year-old Xiaoling ship. In addition, the company signed a long-term lease agreement to lease 11 newly built ships in 2023 (currently 8 ships to be delivered). According to the company's announcement, the new long-term leasing will have a profitability exceeding the company's current ****aoling and Super Flexible fleets by about 20%.
Profit forecasting and valuation
Considering that the dry bulk transportation market cycle is expected to improve, the profit for 2025 was raised 38% to US$350 million, leaving the profit unchanged in 2024. The current stock price corresponds to a price-earnings ratio of 6.3 times/4.7 times. The company's target price was raised by 10.5% to HK$3.15 per share, corresponding to the 2024/2025 price-earnings ratio of 8 times/6 times, with room for an increase of 30.2% from the current stock price. We assume that in 2024, the company will pay dividends at the promised minimum dividend rate of 50%, corresponding to a dividend rate of 7.9%. If the dividend rate in 2024 remains at the level of 75% last year, corresponding to a dividend rate of 12.2%, the company's dividend is attractive.
risks
The dismantling of old ships fell short of expectations, and the growth rate of the global economy fell short of expectations.