Incidents:

On April 25, 2024, Xingtong Co., Ltd. released its 2024 quarterly report:

2024Q1 achieved revenue of 386 million yuan, up 13.64% year on year and 16.63% month on month; net profit to mother was 77 million yuan, up 0.57% year on year, up 10.47% month on month; net profit after deducting net profit of 77 million yuan, up 0.91% year on year and 25.19% month on month.

Investment highlights:

Domestic trade restored the boom in foreign trade, and revenue performance increased year-on-year

Since 2024, the domestic and foreign trade chemical shipping boom has been improving. In terms of domestic trade, taking PX as an example, the average operating rate of 2024Q1 was 86.1%, up 10.8 pcts year on year, and demand continued to recover; foreign trade freight rates are booming. According to Clarkson, taking the Far East-Middle East 15,000 MT chemical tanker as an example, the 2024Q1 freight rate was +5.1% year over month and +41.7% month over month.

With domestic and foreign trade resonance, the company achieved year-on-month growth in revenue and performance.

Capacity expansion continues, and market share is steadily increasing

In 2023, the company acquired Xingtong Wanbang, adding 5 domestic chemical ships and 1 foreign trade chemical ship, with a total capacity of 410,000 DWT; 6 additional ships were put into operation, including 4 foreign trade ships and 2 domestic trade ships, with a capacity of 84,400 DWT; construction of 7 other ships began, including 5 foreign trade ships and 2 domestic trade ships, with a capacity of 101,000 DWT. By the end of 2023, the domestic trade chemical shipping capacity market accounted for +2.12pct to 14.22% year-on-year. I am optimistic that subsequent companies will continue to expand domestic and foreign trade capacity through self-building+mergers and acquisitions.

The two-wheel drive path for domestic and foreign trade is clear, and the long-term value and growth of good companies continues to be realized. Over the long term, the domestic trade liquid dangerous goods transportation industry continues to see a trend of tighter supervision and consumption upgrades in compliance requirements. As a leading compliance leader, Xingtong Co., Ltd. continues to make profits; at the same time, as a high-quality support for domestic refining and chemical “going global”, foreign trade space is gradually opening up. It is expected that the long-term value and growth of the company will continue to be realized under the two-wheel drive of domestic and foreign trade.

Profit forecast and investment rating We maintain the company's net profit forecast for 2024-2026. We expect that the operating income of Xingtong Co., Ltd. for 2024-2026 will be 1,565 million yuan, 1,922 million yuan and 2,344 million yuan respectively, and net profit to mother will be 313 million yuan, 391 million yuan and 491 million yuan respectively. The corresponding PE is 13 times, 11 times and 9 times, respectively, maintaining the “buy” rating.

Risks suggest that demand growth falls short of expectations; heavy asset mergers and acquisitions fall short of expectations; capacity expansion falls short of expectations; policy changes; chemical transportation safety risks; and uncertainty about additional capacity.