Incident: China Merchants Shipping announced results for the 1st quarter of 2024. In the first quarter of 2024, the company's net profit to mother was 1,375 million yuan, up 22.62% year on year; the company deducted non-net profit of 1,359 billion yuan, an increase of 23.31% year on year. The company's deduction of non-profits exceeded market expectations. The main reason was that the oil tanker and dry bulk transportation markets were improving in the current period, while the number of days the fleet was operating increased year on year; the freight rate in the Ro-Ro foreign trade business was higher, and at the same time, foreign trade capacity investment increased year on year.
Increase the 2024 mid-term dividend plan to 50% mid-term dividend. The Board of Directors will pay dividends for the first half of 2024 based on the cumulative undistributed profit and net profit attributable to listed shareholders realized in the current period. Based on the total share capital as of June 30, 2024, the total amount of cash dividends distributed shall not exceed 50% of the net profit attributable to listed shareholders realized in the current period.
Tanker sector: The company's net profit for tankers in the first quarter was 870 million yuan, up 13.87% year on year. The actual TCE was close to 50,000 US dollars/day, in line with expectations. The company's performance lagged behind the VLCC freight rate for about 1 month. According to Clarkson's freight rate, the average VLCC freight rate from December 2023 to February 2024 was 50,856 US dollars/day, 20% higher than the company's fourth quarter 2023 performance period (September-November 2023); the company's net tanker profit for the first quarter of 2024 was 870 million yuan, up 18.2% month-on-month from 736 million yuan in Q4 2023, which is close to the level of increase in market freight rates, which is in line with expectations.
Dry bulk transportation: The net profit of the dry bulk carrier fleet reached 357 million yuan in the first quarter, an increase of 275.79% over the previous year. All major ship types achieved a year-on-year increase in TCE and outperformed the market index. BDI freight rates in the dry bulk market rose 80% year on year in the first quarter of 2024, down slightly 10% from the fourth quarter of 2023; the company's dry bulk fleet's net profit for the first quarter was 357 million yuan, up 276% year on year, and the net profit for the fourth quarter of 2023 was still 7.2% higher than the net profit of 333 million yuan, which is superior to market freight rate performance.
Ro-Ro Transportation: Net profit for the first quarter of 2024 was 80 million yuan, an increase of 116.22% year-on-year, mainly due to the expansion capacity and growth potential of the company's foreign trade Ro-Ro business. The company still has 6 PCTC orders to be delivered one after another in 2025-2027, continuing to bring growth to the Ro-Ro business. Container transportation: Net profit for the first quarter of 2024 was 104 million yuan, a year-on-year decrease of 50.94%.
The rise in ship prices is driving up replacement costs for shipping companies, and replacement costs act as a downward margin of safety. According to Clarkson data, as of April 26, the 10-year old used VLCC ship price recorded 85 million US dollars, an increase of 98% from the beginning of 2021 and a 12% increase from the beginning of 2024; the price of a 10-year old Capesize bulk carrier used ship was 45 million US dollars, an increase of 23% from the beginning of the year. The price of used ships continues to rise, and the downward margin of safety brought about by replacement costs for shipping companies continues to rise. Looking at upward space, the current VLCC used ship price is only 63% of the 2008 high of US$135 million, and the Capesize bulk carrier is 39% of the 2008 high of US$116 million; considering inflation, the current value of VLCC used ships is only 34% of the historical high, and the Capesize price is 21%, and the replacement cost of the company's oil dispersion fleet is still huge.
Supply is scarce, and geopolitical options are compounded, a dual boom cycle of oil dispersion has begun, and the sustainability of bulk freight prices has been underestimated. Currently, oil transportation is trending upward in a long cycle (rising asset prices, and insufficient production capacity in shipyards), and the medium cycle fluctuates sideways (demand rigidity due to high oil prices vs. low inventories supported by geography & production cuts; accelerated aging of the fleet & increased black market sanctions driving supply clearance vs. low willingness of shipowners to dismantle ships due to high freight rates), and the short-term market may not be weak in the off-season. Continued demand for bulk goods is underestimated, and the boom cycle begins in 2024. Supply-side Capesize bulk carriers face the double dilemma of tight platforms and low cost shipyards unwilling to accept orders. Currently, handheld orders account for 5.9%. Demand for demand-side bauxite continues to grow steadily, non-mainstream mines will continue to increase in the future, and the future Simandou project in West Africa will be put into operation. In 2024, the Cape of Good Hope bulk carriers began an upward boom cycle, focusing on the central rise in medium- to long-term bulk freight prices. Pay attention to the determination that the supply of oil dispersion capacity is scarce, and the rising freight rate options brought about by frequent geopolitical events.
Maintain profit forecasts and maintain a “buy” rating. Considering the strong supply-side certainty of oil distribution prices, keep the company's net profit forecast of 8.5, 10, and 10.2 billion dollars unchanged for 2024-2026. Maintain a “buy” rating.
Risk warning: The release of new orders exceeded expectations, global macroeconomic downturn, and geographical disturbances.