Core views:

Shenghang Co., Ltd. released its annual report for the year 23 and the quarterly report for the year 24: in '23, the company achieved revenue of 1,261 million yuan, +45.30% year over year; realized net profit of 182 million yuan, +7.68% year over year. By business, domestic trade chemicals, foreign trade chemicals, and oil transportation achieved revenue of 8.10/3.33/115 million yuan respectively in 23 years, with year-on-year growth rates of +8%/+1196%/+33%, respectively, and gross margins of 37%/22%/18%, respectively.

Domestic trade freight rates are picking up, foreign trade is booming, domestic trade is shifting from shipping to foreign trade, and the 4Q performance is impressive. 2023Q4 achieved revenue of 384 million yuan, +51.53% year over year; realized net profit of 66 million yuan, +90.49% year over year; realized net profit of 60 million yuan without return to mother, +74.53% year over year; and net interest rate for a single quarter was 19.17%, up 7.74pp from month to month.

Foreign trade continued to perform strongly in the first quarter of 2024 due to the tense situation in the Red Sea. According to the company's financial report, 2024Q1 achieved revenue of 378 million yuan, +29.27% year over year; realized net profit of 47 million yuan, +4.12% year over year; realized net profit of 46 million yuan without return to mother, +1.72% year over year.

Flexible switching between domestic and foreign trade mitigates risks, steady expansion of production capacity builds growth, and is optimistic about the recovery of domestic trade and the growth opportunities brought to the company by the boom in foreign trade. Facing the downturn in the chemical industry in 2023, the company's flexible capacity investment capacity has been verified. Furthermore, since the beginning of 2024, many ships purchased by the company from Fenghai Shipping have been put into operation one after another, and the capacity scale has been further increased.

In the future, against the backdrop of a recovery in domestic trade and a boom in foreign trade, the company is expected to fully tap the operating value of the domestic and foreign trade market with flexible and effective capacity switching capabilities and the scale effects brought about by capacity expansion, so as to achieve continuous release of performance.

Profit forecast and investment advice: The company's 24-26 EPS is expected to be 1.35, 1.68, and 2.07 yuan/share, respectively. I am optimistic that domestic and foreign trade will go hand in hand, and that the rapid expansion of production capacity will bring the company growth opportunities. The company was given a 24-year PE valuation of 15 times, corresponding to a reasonable value of 20.25 yuan/share, covered for the first time, and gave a “buy” rating.

Risk warning: the risk of demand fluctuations, capacity expansion falling short of expectations, capacity regulation policy risks, etc.