1. The company announced its 2024 quarterly report: record high non-net profit deduction for a single quarter 1) Performance: Q1 achieved net profit of 670 million yuan, +65.3% year over year; net profit after deducting non-return to mother of 550 million yuan, +40.5% year over year. This deduction of non-net profit was the highest in a single quarter in history. Q1 Non-recurring profit and loss of $120 million, mainly income from disposal of illiquid assets of $137 million. 2) Revenue: Q1 revenue of 1.84 billion, +13.7% YoY. 3) Profit margin: Q1 gross profit margin of 37.1%, year-on-year +3.7 pts, net profit margin 36.5%, year-on-year +11.4 pts; deducted non-return net interest rate of 30.0%, +5.7 pts year-on-year. 4) Expense rate: The Q1 3 rate was 1.6%, a year-on-year decrease of 3.1 pts, mainly due to a decrease of 46 million dollars in financial expenses. 5) Asset disposal: During the reporting period, the company transferred the “Changhang Warrior” ship to Asian Express Shipping (Hong Kong) Limited at a price of 18.95 million US dollars and the “Changhang Discovery” ship to Shandong Ganghang Oil Transportation Co., Ltd. at a price of 142.8 million yuan, all of which have completed the handover procedures.

2. Freight Price Index:

2024Q1 (taking into account the freight settlement cycle, calculated from mid-December to mid-March) MR-TCE averaged about $341,000 per day, +6.5% year-on-year; TC7 and TC11-TCE averaged 3.50, $35,500 per day.

2024Q2 (mid-March to date) MR-TCE averaged around $35,000/day, up from Q1.

3. The completion of the repurchase and cancellation shows confidence in future development.

On December 25, 2023, the company announced that it intends to repurchase no less than 100 million yuan and no more than 150 million yuan of shares and cancel them. On February 27, 2024, the company completed this repurchase. The actual repurchase of 509.28 million shares of the company, accounting for 1.0495% of the company's total share capital. The average repurchase price was 2.9453 yuan/share, and the total capital used was 150 million yuan (excluding transaction fees).

4. “Risk asset premium+improving supply and demand pattern”, freight rates are expected to rise at the center. 1) Repeated geographical conflicts, and the risk premium nature of energy logistics assets may be further reflected. 2) Demand side: Geopolitics, the withdrawal of old refining energy, and changes in trade flows have continued to support the growth of demand in tons and nautical miles. 3) Supply side: The number of new finished tanker construction orders has recovered in 2023, but current orders only account for 6.9% of the current fleet capacity and are still at a relatively low level in history. Combined with the implementation of environmental regulations such as EEXI and CII, higher fuel prices, and an increase in the proportion of ships over 15 years old, shipowners are encouraged to sail at low speeds, further reducing capacity supply capacity.

Investment advice: 1) Profit forecast: Based on current market demand and freight rate levels, we slightly adjust our 24-26 profit forecast to achieve net profit of 2.40 billion, 2.47 billion, and 2.01 billion yuan (the original forecast was 2.20 billion, 2.32 billion, and 2.36 billion). The corresponding EPS for 24-26 years was 0.50, 0.51, and 0.52 yuan, respectively, and the corresponding PE was 7.9, 7.7, and 7.6 times. 2) Valuation: Maintaining the previous valuation method, that is, using the cyclical stock boom cycle 10 times PE, giving 2024 performance 10 times PE, corresponding to a target market value of 24 billion dollars and a one-year target price of 5.0 yuan. The expected space is 26% higher than the current price, and the “recommended” rating is maintained.

Risk warning: Demand for oil transportation falls short of expectations, risk of oil price fluctuations, old ship dismantling process falls short of expectations, geopolitical risks, etc.