COSCO Marine released its 2024 quarterly report. In the first quarter, the company achieved operating income of 5.838 billion yuan, up 3.7% year on year; net profit to mother was 1,236 billion yuan, up 12.8% year on year. Of this, net profit without return to mother was 1,236 billion yuan, an increase of 39.8% over the previous year.

Foreign trade oil transportation is basically stable, and domestic oil transportation has increased. In the first quarter, COSCO Haineng's foreign trade oil transportation business contributed gross profit of 1,217 billion yuan, a year-on-year decrease of 0.3%. The gross profit of domestic oil transportation business was 367 million yuan, an increase of 29.6% over the previous year. In addition, the LNG transportation business contributed 182 million yuan to net profit. However, from December 2023 to February 2024, the average VLCC TD3C freight rate was 41,747 US dollars/day, an increase of 21% over the previous year. Haineng's foreign trade oil transportation performance did not reflect an increase in freight rates, or was related to factors such as days of operation.

Supply and demand patterns and geopolitics drive up the value of tanker assets. As of April 26, the 10-year old VLCC price had reached $85 million, up more than 10% from early 2023. We believe that, on the one hand, there is a new supply shortage in the 2024-2025 period. On the other hand, geopolitical events such as the normalization of the Red Sea issue since the beginning of the year, the gradual escalation of the conflict between Palestine and Israel to the internal conflict in the Middle East, and the further escalation of the Russian-Ukrainian conflict have highlighted the importance of crude oil. As the main means of transportation, the value of oil tankers has increased.

The foreign trade oil transportation business is expected to welcome a sharp rise in volume and price in 2024. The number of VLCCs that can be delivered globally in 2024 is only 1, and in the context of increasing aging, stricter environmental policies, and stricter administrative sanctions, the supply side is currently facing strong constraints. On the demand side, the US is expected to cut interest rates starting in 2024 to release economic momentum for the world, and global demand for crude oil is expected to increase. The gap between global oil supply and demand is expected to be 4.1% in 2024, and we are optimistic that the freight center will continue to rise in 2024.

Risk warning: The global economy declined beyond expectations, safety incidents, and the release of tanker supply exceeding expectations.

Investment advice:

COSCO Haineng is the world leader in oil transportation capacity and is expected to fully benefit from the upward flexibility in freight rates brought about by strong supply constraints. It is estimated that in 2024-2026, Haineng will achieve a net profit of 61.5/68.6/7.40 billion yuan. The current PE valuation is 12.2/11.0/10.2 times, maintaining a “buy” rating.