Incident: Shenghang Co., Ltd. announced its 2023 annual report and the first quarter report of 2024. In 2023, the company achieved revenue of 1.26 billion yuan, an increase of 45.3% over the same period of the previous year. Among them, it achieved chemical transportation revenue of 1.14 billion yuan, an increase of 52.8% over the same period of the previous year, accounting for 90.7%; it achieved oil transportation revenue of 120 million yuan, an increase of 33% over the same period of the previous year, accounting for 9.2%. For the full year of 2023, the company achieved net profit of 180 million yuan, and the net profit margin to mother was 14.4%, down 5pp from '22. In the first quarter of 2024, the company achieved revenue of 380 million yuan, an increase of 29.3% over the previous year, achieved net profit of 50 million yuan to mother, and a net profit margin of 12.5%.

Domestic trade is jeopardizing transportation is rising steadily, and foreign trade business continues to expand. In 2023, we achieved 4.97 million tons of domestic liquid chemical waterway traffic, an increase of 5.1% over the same period last year. The company's market share in the domestic coastal bulk liquid chemical waterway transportation sector is steadily increasing. In 2023, it achieved 590,000 tons of domestic oil waterway traffic, an increase of 7.7% over the same period last year, and the company's service capacity for domestic trade refined oil transportation was further enhanced; the company continued to expand its capacity investment in international hazardous chemicals transportation business, and the company's foreign trade transport routes continued to expand to Southeast Asia, Northeast Asia and India. The total volume of foreign trade dangerous goods was achieved throughout 2023, an increase of 2462.5% over the same period last year. The company's competitiveness in the foreign trade liquid dangerous goods transportation market was greatly improved.

The overall capacity of the industry grew in an orderly manner, and the company's capacity structure was continuously optimized. By the end of 2023, the total number of coastal interprovincial chemical tankers (oil and chemical dual-use vessels) was 292, or 1.492 million dwt, an increase of 5 ships and 93,000 dwt compared to the end of 2022, an increase of 6.6% in tonnage. Under macro-control, the overall capacity of the industry grew in an orderly manner. The company gradually expanded its capacity by applying for additional capacity and purchasing existing ships in the market. By the end of 2023, the company controlled a total of 40 domestic and foreign trade vessels (including the purchase of 3 ships undergoing handover and transformation from Fenghai Shipping but not yet in operation), with a total capacity of 299,000 DWT, including 29 domestic trade chemical tankers, with a total capacity of 180,000 DWT; 6 refined oil tankers with a total capacity of 58,000 DWT; 5 foreign trade chemical vessels with a total carrying capacity of 60,000 DWT.

Profit forecasting and investment advice. Considering that the company is actively developing new customers while expanding the size of the existing fleet, we believe that there is room for further growth in the future; the company's perfect transportation network can meet customer needs while effectively reducing operating costs. The company's net profit for 2024/25/26 is estimated to be 2.5, 3, and 350 million yuan respectively, EPS is 1.44 yuan, 1.75 yuan, and 2.04 yuan respectively, and the corresponding PE is 12x, 10x, and 9x, respectively. In 2024, the average PE of comparable companies was 16 times, giving the company 15 times PE in 24 years, corresponding to a target price of 21.6 yuan. For the first time, coverage was given a “buy” rating.

Risk warning: risk of fluctuations in the chemical industry, risk of safe operation and environmental protection, risk of rising operating costs, etc.