Brief performance review

On April 25, 2024, Shenghang Co., Ltd. released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 1.26 billion yuan, an increase of 45.3% over the previous year, and achieved net profit of 180 million yuan to mother, an increase of 7.7% over the previous year. 2024Q1 achieved operating income of 378 million yuan, an increase of 29.3% year on year, and realized net profit of 47 million yuan, an increase of 4.1% year on year.

Management analysis

The scale of business expanded, and revenue increased year over year. The company's revenue increased year-on-year in 2023, mainly due to the expansion of business scope and scale. The company continues to acquire ships to expand its capacity. According to previous announcements, as of the end of 2023, the company controlled 40 domestic and foreign trade vessels (including ships purchased but not put into operation), with a total capacity of 298,800 dwt, an increase of 48.7% over the beginning of the year. In addition, the company also has 4 ships under construction, with a total capacity of 21,400 dwt, including 3,720 dwt oil/chemical dual-use ships (capacity replacement), 6,200 dwt petrochemical dual-use vessels (capacity replacement), 7450 dwt chemical tankers, and 22,000m? LPG ship.

The gross margin decreased year over year, and the cost ratio increased year over year. In 2023, the company achieved a gross profit margin of 31.4%, a year-on-year decrease of 5.5 pct. In terms of the cost ratio, the company's expense ratio for the 2023 period was 13.8%, up 0.11pct year on year, of which sales rate was 0.43%, down 0.10pct year on year; management expense ratio was 5.43%, down 1.20pct year on year; R&D expenses rate was 2.53%, down 0.63 pct year on year; and financial expense ratio was 5.44%, up 2.04 pct year on year, mainly due to the increase in the scale of financing. Due to the year-on-year decline in gross margin and the year-on-year increase in the expense ratio, the company's net interest rate to mother was 14.43% in 2023, a year-on-year decrease of 5.04pct.

The share repurchase is progressing in an orderly manner, and it is proposed to acquire Haichanghua to enhance the company's business development. The company announced in February 2024 that it plans to buy back the company's A shares through centralized bidding, with a total repurchase amount of not less than 40 million yuan. As of 1Q2024, the company's cumulative repurchases of the company's shares accounted for 1.1% of the total share capital, and the total number of repurchases was 29.997 million yuan. In 2023, the company announced that it intends to acquire a 2% stake in Anderford Energy Development, increasing its shareholding ratio to 51%. As of January 2024, Anderford Energy Development has been included in the scope of the company's consolidated statements. In January 2024, the company announced its intention to acquire 71.5342% of Haichanghua's shares. The company currently has 8.19% of Haichanghua shares. Haichanghua mainly deals in water transportation of chemicals and has good cooperative relationships with CNOOC, Sinopec, etc. The current shipping capacity is mainly for refined oil tankers, and the acquisition can strengthen the company's business expansion.

Profit Forecasts, Valuations, and Ratings

Considering weak demand in the chemical transportation market, the company lowered its 2024-2025 net profit forecast to 240 million yuan and 310 million yuan, and added the 2026 net profit forecast to 360 million yuan. Maintain a “buy” rating.

Risk warning

Chemical industry fluctuations, safety operation risks, mergers and acquisitions falling short of expectations, and risk of shareholder holdings reduction.