Key points of investment
A-share dry bulk is a scarce target, focusing on ultra-flexibility, flexible positioning and fine management, leading the way in profitability. Haitong Development is a leading domestic enterprise in the field of private dry bulk shipping. As of June 2024, the company had 38 self-operated dry bulk carriers (36 owned and 2 leased), with a total capacity of 2.09 million DWT, and an average age of 12.3 years. It has its own ultra-convenient shipping capacity and is ranked 8th in the world and ranked first among domestic private enterprises. Furthermore, the company's capacity expansion was mainly purchased when ship prices were relatively low, building up the company's long-term competitive advantage. The company has flexible positioning and lean operation, and the TCE of overseas ships has continuously greatly exceeded the market average.
The dry bulk shipping cycle is already in the recovery phase, and it is expected that the upward supply cycle will determine the direction starting in 2024: orders for new ships have been gradually digested, current orders are at a historically low level. New ship prices continue to rise, tight platforms are lengthening delivery cycles and suppressing the desire to build ships, and for shipyards, they will be more biased towards building ships with higher added value. Combined with stricter environmental regulations, this will further limit the growth of effective capacity.
Demand determines elasticity: 1) Domestic demand is supported and structural changes have occurred, or there are differences in expectations; the beginning of the US treasury replenishment cycle will form an effective catalyst; interest rate cuts are still expected during the year, and the factors that suppressed earlier demand are expected to be lifted; 2) the industrialization and urbanization process in emerging market countries is accelerating, or relaying to provide new momentum for demand growth. 3) Multiplier effect of distance: Taking bauxite as an example, the increase in exports from long-distance exporters is driving up demand for tons of nautical miles; moreover, in the anti-globalization process, diversification of supply sources causes loss of efficiency and lengthening of transportation distances, which may be a long-term trend. 4) Geopolitical and climate issues frequently disrupt the supply and demand sides of the industry or form favorable catalysts.
The gap between supply and demand in the next two years: According to Clarksons forecast, the difference between supply and demand in the dry bulk shipping market in 2024 and 2025 will be 0.6% and -1.8%. Among them, the gap between supply and demand for small bulk shipping performed better. The gap between supply and demand in 2024 and 2025 was 1.9% and -1.5%, respectively.
The freight center is expected to increase, providing flexibility in upward performance
Since the beginning of 2024, benefiting from demand, compounded by Red Sea detours and Panama Canal congestion, the freight rate index has bottomed out and rebounded, significantly surpassing the same period last year. With the arrival of the peak demand season in the second half of the year, we expect the freight center to rise further.
Profit elasticity estimate: Under the current capacity scale, for every 1,000 US dollars increase in the average daily rent level, profit is expected to increase by 74.55 million yuan.
Profit forecasting and valuation
The company's net profit for 2024-2026 is estimated to be 5.1, 7.0 million yuan, and 81 billion yuan, corresponding to EPS of 0.56, 0.76, and 0.89 yuan, respectively. The company focuses on a single ship type and has lower operating costs than its peers. It is flexible in positioning to achieve a TCE level far exceeding that of the market, and is expected to maintain a faster pace of capacity introduction. It is expected to usher in the release of flexible profit, coverage for the first time, and a “gain” rating.
Risk warning
1) Global economic downturn; 2) large-scale shipbuilding by shipowners; 3) risk of measurement deviation, etc.