Description of the event
In the first quarter of 2024, the company achieved operating income of 2.79 billion yuan, -8.2% year-on-year; realized net profit of 390 million yuan, or -36.3% year-on-year; realized net profit of 280 million yuan after deduction, -17.0% year-on-year.
Incident comments
The economy is recovering from twists and turns, and industry freight rates are still under pressure. (1) From a demand perspective, since macro-domestic demand is still undergoing a period of twists and turns, industry demand is still under pressure. The cumulative domestic trade container throughput of major domestic ports is -0.2% year-on-month. Considering that March is the post-holiday resumption phase, the overall throughput of 1Q24 is expected to increase slightly year-on-year; (2) Affected by weak demand and the industry's new capacity in 23 years, the average PDCI index was 1Q24 -26.8% to 1127 points, and -4.8% month-on-month. Looking at freight rates, the industry supply and demand pattern returned to the 2018 Q1 level (2018-2020) PDCI average is 1180, 1201, 1288 points).
Domestic trade developed steadily during the trough period, and revenue from foreign trade chartering expanded. (1) After 23 years of launching large ships and run-ins, the company's large ship operations are more sophisticated, and the route layout is more reasonable, so the growth rate is higher than the capacity growth rate: 1Q24 domestic trade weighted average capacity +2.4%, completed domestic trade volume +7.5%. The actual billing volume growth rate is expected to be slightly higher than the traffic volume, and domestic trade is developing steadily during the trough period; (2) The company has now basically entered the foreign trade charter market, benefiting from the expansion of the chartering scale and the company's foreign trade charter revenue. As a result, despite a significant decline in freight rates, the company's revenue was -8.2% year-on-year to 2.79 billion yuan.
Operations improved month-on-month, and financial expenses declined. From a business perspective, on the one hand, companies paid more attention to cost control, cost reduction and efficiency, and on the other hand, asset advantages were reflected after extensive experience in large ship operations. Therefore, from a month-on-month perspective (eliminating the impact of foreign trade chartering), the company's revenue was -11.6% month-on-month, but operating costs were -13.3% month-on-month, and gross margin was +1.7pct to 16.5% month-on-month, but the downward impact of freight rates still led to 1Q24 gross profit of -25.2% year-on-year. On the expense side, the company's expenses decreased by 80 million yuan year-on-year, mainly due to the reduction in financial expenses, and the reduction in the company's financial expenses by 70 million yuan due to the contribution of interest income and exchange earnings.
Continuously optimize the fleet structure, or profits may be affected by the pace of government subsidies. (1) After the big ship was launched, the company continued to optimize its fleet structure. By selling old ships, 1Q24 recorded asset disposal revenue of 100 million yuan; (2) Other revenue in 1Q24 was low, or due to the pace of government subsidies included, a decrease of 170 million yuan over the previous year. Therefore, in the end, the company's net profit for 1Q24 was 380 million yuan, -36.3% year on year, and net profit after deduction was 280 million yuan, -17.0% year over year. The profit decline was superior to the decline in industry prices.
Investment advice: Combines operational resilience and upward flexibility, and long-term returns with high dividends to shareholders. First, at the industry level, the pressure stage of supply release has passed, and demand has reached the bottom, and the industry's supply and demand pattern is likely to gradually recover; secondly, from a company perspective, whether it is internal exploration, cost reduction and efficiency, or seeking chartering income and subsidy income from the outside during the trough period, it shows that the company has strong operational resilience and strong will and ability to generate profits; both the industry and the company have obvious options for macroeconomic recovery and upward. The company has maintained a high dividend ratio since its listing. The dividend ratio at the end of 2023 reached 88%. Currently, the company's cash scale and ability to generate cash guarantee dividend capacity. The company's strong will to give back to shareholders provides dividend motivation, so the company's long-term dividend income is impressive. The company's net profit for 2024-2026 is estimated to be $14.2, 17.9, and 1.97 billion, respectively. The corresponding PE is 13, 10, and 9 times, respectively. Assuming a 60% dividend ratio, the corresponding dividend rates are 4.7%, 5.9%, and 6.5%. They are optimistic about the company's operation and management, and maintain a “buy” rating.
Risk warning
1. The macroeconomy experienced a sharp decline;
2. The competitive landscape of the industry has deteriorated.