Key points of investment
Special fleet leader, “three core and three chain” to drive strategic transformation
COSCO Marine is the world's leading special ship transportation company. It owns and operates 127 ships of various types, such as pulp ships, semi-submersible ships, multi-purpose ships, heavy lift ships, timber ships, asphalt ships, and automobile ships, totaling 4.6844 million dwt. It has formed a global business service network based on mainland China and radiating regions such as Japan, South Korea, Southeast Asia, Europe, South America, Africa and West Asia. The company continues to deepen the “three-core three-chain” strategy, focusing on the three core business lines of the new energy industry, advanced manufacturing, and strategic commodities, focusing on the extension and expansion of the three key industrial chains of pulp logistics, engineering project logistics, and automobile logistics.
Performance is greatly affected by cyclical fluctuations in the international shipping market
1) Revenue side: In 2023, revenue of 12.07 billion yuan was achieved, a slight decrease of 1.64% year-on-year. In terms of revenue composition, the company's multi-purpose ships, heavy gondolas, pulp ships, and semi-submersible vessels accounted for 28%, 18%, 21%, and 17% of revenue respectively in 2023. Export transportation accounted for 41% of revenue, and the total transportation volume of machinery, equipment and pulp products accounted for about 71.20%. 2) Cost side: Judging from the cost composition, the company's main costs in 2023 were fuel, port fees, crew fees, depreciation, etc., accounting for 27%, 19%, 13%, and 13% of operating costs, respectively. The gross margin fluctuated due to the boom in the shipping market. In 2023, the company's gross margin and net profit margin to mother were 18% and 9%, respectively, and the gross margin of different ship types became divided.
Multi-purpose ships and heavy gondolas: The basic business market. Multi-purpose ships and heavy gondolas of leading companies with a fleet size currently mainly provide transportation services for wind power equipment, engineering projects, and large-scale machinery and equipment. On the one hand, the global wind power installation is growing rapidly. The compound annual growth rate of new land wind and sea wind installations in 2023-2025 reached 5.6% and 20.2%, respectively. China's wind power manufacturers accelerated their overseas travel, or support the continuous growth of wind power equipment transportation demand. On the other hand, China's foreign contracted engineering business reached US$264.51 billion in 2023, compared to 4.5 billion US dollars. %. China's construction machinery exports have maintained rapid growth, and exports of wind power equipment and mechanical equipment have accelerated or driven a high increase in transportation demand. As of April 2024, the company's multi-purpose and heavy-lift capacity was the largest in the industry. The company's average capacity of a single ship was about 28,000 dwt, and the average ship age was about 13.5 years. The ship type and age were leading among leading companies. The steady growth in market segment demand supported the basic business market of the company's multi-purpose ships and heavy gondolas.
Pulp ships: Promoting pulp transportation. The “pulp+automobile” transportation model improves fleet operation efficiency. The company's pulp ship business mainly involves imported marine transportation of Chinese pulp. Routes include routes such as South America East-China, North-West Europe-China, and North America/Mediterranean routes. In 2022, the company innovatively launched a pulp ship+special vehicle frame transport vehicle solution. Pulp ships export transport vehicles and transport pulp back, improving the transportation efficiency of the pulp fleet. From 2022 to 2023, the company's pulp carrier vehicle revenue reached 119 million yuan and 1,182 million yuan respectively, achieving a significant increase in the revenue of the pulp fleet. In recent years, the company has established close ties with major pulp mills. From 2023 to 2030, the company has signed a pulp COA contract requiring an annual transportation volume of 6.7-10 million tons. According to the company's announcement, it is estimated that after 29 multi-purpose pulp ships for the investment project in 2025 are connected, the company's annual transportation capacity will reach 7.18 million tons. The contract volume provides a strong guarantee for the steady operation of the company's pulp fleet.
Automobile carriers: Specialized operations of joint ventures, increasing fleet size or driving business growth. Since 2020, China's automobile exports have grown rapidly. According to data from the Association of Automobile Manufacturers, China exported 4.91 million vehicles in 2023, +57.9% over the same period, surpassing Japan as the world's largest automobile exporter. China's NEV industry has a certain first-mover advantage and scale advantage, which may drive the steady growth of China's automobile exports. In 2022, the company and SIPG Logistics Co., Ltd. and SAIC Anji Logistics Co., Ltd. jointly invested in the establishment of Yuanhai Auto Shipping Co., Ltd., and the company held 42.5% of the shares. In 2023, Yuanhai Auto Shipping Co., Ltd. operated 6 professional automobile vessels, with a vehicle export carrying capacity of nearly 110,000 vehicles. The joint venture launched a new shipbuilding plan. It is building 24 LNG dual-fuel vehicle carriers, which will be delivered in batches in 2024-2026, forming a Ro-Ro fleet of more than 30 ships, and is expected to achieve an export capacity of more than 700,000 vehicles.
Profit forecasting and valuation
The company is expected to achieve operating revenue of 144.83, 17.020 and 17.926 billion yuan respectively in 2024-2026, +21%, +18%, and +5%. The company is a leading global specialty shipping carrier, and its performance is expected to grow steadily as the fleet size increases steadily. EPS in 2024-2026 is 0.64, 0.81, and 0.93, respectively, corresponding PE is 10.2, 8.1, and 7.0 times, respectively. For the first time, coverage was given.
Risk warning
Risk that China's wind power and mechanical equipment exports fall short of expectations; risk of automobile export volume falling short of expectations; risk of large fluctuations in shipping market freight rates, etc.