COSCO Marine Controls released its 2024 quarterly report, and its performance achieved high month-on-month growth. COSCO Marine Holdings achieved operating income of 48.270 billion yuan in the first quarter of 2024, up 1.94% year on year and 18.05% month on month; realized net profit of 6.755 billion yuan, down 5.23% year on year, up 277.59% month on month; net profit without return to mother was 6.724 billion yuan, down 5.20% year on year and up 280.32% month on month.
Maritime control freight volume was relatively stable in the first quarter, and foreign trade single box revenue was relatively stable. In the first quarter, COSCO Maritime Control achieved a total freight volume of 6.0273 million TEU, an increase of 10.53% over the previous year. By structure, with the exception of the Asia-Europe route, which decreased efficiency due to the Red Sea incident, and freight volume declined, the freight volume on all other routes achieved significant growth. In terms of price, the average CCFI value in January-March was 1290.49, up 18.76% year on year, and SCFI average was 2009.72, up 107.45% year on year. However, COSCO Maritime Control's international route revenue was 1172.06 US dollars/TEU, down 99.45 US dollars/TEU year on year, significantly outperforming industry freight rates. We expect the company's extensive executive cooperation during the Red Sea incident to protect the supply chain for customers. With the implementation of Changxie prices in 2024 and the strengthening of spot freight rates, the company's route revenue is expected in the second quarter Further growth.
Inventory replenishment in Europe and the US and the Red Sea incident may lead to a reversal in industry supply and demand, and the average freight rate is expected to rise sharply throughout the year.
Since November 2023, the situation in the Red Sea has continued to be tense, and the tightening supply of capacity in the relevant route markets has led to a recovery in freight prices at the end of the year. Considering that about 30% of the world's capacity is deployed on European routes, detouring the Cape of Good Hope from the Suez Canal route will extend the one-way distance by about 30%. If the Red Sea incident continues throughout the year, it may drive about 9% of the industry's overall demand, which is enough to consume about 9% of the capacity investment during the year. Furthermore, current consumer goods inventories in Europe and the US are already in a low position, and the warehousing ratio has been repaired. If inventory is later replenished, the oxtail effect is expected to further stimulate the upward momentum of industry freight rates.
Risk warning: The global economy declined beyond expectations, security incidents, and dividend payment rates fell short of expectations.
Investment advice:
As a first-tier shipowner, both sides of the revenue and cost have shown bargaining power superior to the industry average. Currently, in the context of continuing tension in the Red Sea and Europe and the US are expected to start replenishing stocks, the company is expected to lead the industry to achieve profit recovery. The company is expected to achieve net profit of 291.0/295.8/307.3 billion yuan in 2024-2026. The PE valuation corresponding to the current stock price is 6.2/6.1/5.9X, maintaining a “buy” rating.