Key points of investment
The inventory cycle has stabilized+the Red Sea incident has been prolonged. Container manufacturing is expected to rise sharply in volume and price (1). The inventory cycle between China and the US is stabilizing, and demand for inventory replenishment is expected to gradually emerge. The inventory removal cycle between China and the US resonated in 2023, and container production and box prices continued to decline. In 2024, the growth rate of inventories in China and the US fell back to a historically low level, and one after another entered the passive storage phase. In April 2024, China's total import and export value was US$51.6 billion, up 4.4% year on year. Both exports and imports achieved year-on-year correction, reflecting that the domestic and overseas inventory removal cycle is nearing its end. Demand for inventory replenishment is expected to gradually appear, and container production and average export prices have rebounded sequentially. (2) Along with the restructuring of global trade, container stocks have been scattered everywhere.
Industrial products originally exported directly from China to Europe and the US now need to be assembled and processed via Southeast Asia, Mexico, etc., and then shipped to major consumer countries such as Europe and America. With the lengthening of transportation routes, it is more difficult to dispatch containers at ports, and demand for containers has increased. (3) Under the protracted trend of the Red Sea incident, shipowners' demand for spare containers has increased. As a result of the Red Sea incident, a large number of ships circumvented the Cape of Good Hope. Shipping efficiency and container turnover decreased, and shipowners used more ships and containers to meet shipping needs.
According to data from container shipping analysis company Linerlytica, Singapore port congestion reached 200 at the end of May 2024
10,000 TEUs may cause a gap in shipowners' use of containers in the short term. With the container supply chain boom picking up, the manufacturing side is expected to see a sharp rise in volume and price.
Box prices have rebounded and steel prices remain low. Under the scale effect, the profit side of manufacturers is expected to repair the gross margin of container manufacturing. The gross margin of container manufacturing is greatly affected by scale effects and raw material prices. Among them, steel accounts for about 50% of container manufacturing costs. (1) According to data from the General Administration of Customs, the average unit price of China's container exports reached 3,279 US dollars/ton in April 2024, an increase of 37.3% over the previous month, and an increase of 18.6% compared with January 2024. (2) According to Gangzhijia Steel Network, the price of hot-rolled coils (container-made steel) in China was 3,906 yuan/ton in April 2024, down 2.3% from the previous month and 7.0% from January 2024. As steel prices remain low and fluctuate, container prices are rising month-on-month, and the profit side of container manufacturers is expected to recover further.
Offshore oil and gas investment is accelerating, and a reversal trend in the offshore industry cycle is showing
High expectations for international oil prices+natural decline in stock oil and gas field production. Oil and gas companies are clearly willing to spend capital, and offshore oil and gas projects are showing a reversal trend due to the advantages of large reserves and high economic efficiency. (1) Offshore manufacturing: Thanks to the development of offshore oil extraction technology and the scale effect brought about by the merger of offshore drilling operations, the cost of offshore oil and gas extraction has been drastically reduced. Since 2014-2021, the world's oil and gas exploration and development is gradually shifting to the ocean. The capital expenditure of major oil companies around the world is rising steadily, and the number of orders received by the company's offshore manufacturing business such as FPSO is expected to continue to grow. (2) Offshore drilling platform operation: After years of cycle bottom restoration, the Clarkson drilling platform daily fee index has reached a new high since the end of 2014. The company owns a total of 14 platforms: 5 semi-submersible drilling platforms (2 leased), 6 jack-up drilling platforms (all leased), and 3 living platforms (2 leased). Under the trend of increasing daily rates for drilling platforms, the company's leased platforms are expected to obtain leases in the future. Contract rents for renewal platforms have increased markedly, and there is plenty of room for performance to rebound.
Profit forecast and investment rating: Benefiting from the recovery in downstream demand, the company's performance is expected to continue to improve from 2024. We maintain the company's 2024-2026 net profit forecast of 24.7/32.9/4.75 billion yuan. The current market value corresponds to PE of 20/15/11 times, maintaining a “buy” rating.
Risk warning: macroeconomic fluctuations, geopolitical risks, crude oil price fluctuations, etc.