The Zhitong Finance App learned that Guotai Junan released a research report stating that it maintains the “increase” rating of China Ship Leasing (03877) and predicts net profit of HK$22/24/2.6 billion for 2024-26, with a target price of HK$2.06 billion. The company is the only shipyard leasing company in China. It has ship-understanding genes and is committed to “countercyclical shipbuilding and procyclical operation”. The shipping industry has been booming in recent years. It is expected that the company's short-term rental business will fully benefit, and profit sustainability will exceed expectations. At the same time, the company's capital expenditure will continue to slow down, and the dividend rate is expected to gradually increase, and the company's low PE will create a potentially high dividend target.

Guotai Junan's main views are as follows:

Results grew steadily in 2023, and long-term rental profits increased significantly.

At the end of 2023, the company's fleet size was 151 ships (including orders), of which 128 were in operation, down 1 from the end of 2022. Net profit of HK$1.9 billion (+10%) was achieved in 2023. Among them, there are 102 long-term leasing (leasing+long-term leasing) vessels, with an estimated net profit of HK$1.4 billion (+25%); 26 short-term leased (own+joint venture) vessels, with an estimated net profit of HK$500 million (-19%). The bank expects long-term rental profits to grow steadily in the next two years with the delivery of on-hand orders. Short-term rental profits will benefit from the upward trend in refined oil transportation, and the refined oil freight center will reach a record high in the first half of 2024, and the company's performance may exceed expectations.

According to the 2023 annual report, the company has short-term leasing (own+joint venture) 8 bulk carriers, 4 LPG carriers, and 14 product tankers. Short-term rental profits declined in 2023 due to a decline in dry bulk market sentiment. The 2024Q1 dry bulk market performance exceeded expectations. In the first half of 2024, the refined oil freight center hit a record high for the same period. The company's performance for the first half of 2024 is expected to exceed expectations. Considering that the capacity utilization rate of the refined oil transportation market has exceeded the threshold, the future boom will rise and continue or exceed expectations. The company will fully benefit from the rise in refined oil transportation, and the sustainability of profits may exceed expectations.

The dividend rate is currently increasing in 2023, and high dividends can be expected in the future.

Since the company went public, the dividend rate has declined year by year, and the capital expenditure cycle is behind it. The dividend rate increased for the first time in 2023, to 39%. In 2023, 18 new ship orders were signed, 2 fewer than in 2022. Orders may continue to be placed with caution in the future. At the end of 2023, the company was ordering 23 ships, a reduction of 6 ships compared to the end of 2022, and future capital expenditure will be reduced. The company has long attached importance to shareholder returns, and it is expected that the dividend rate will gradually increase. The company's PE valuation is less than 5 times. If the dividend rate increases to 50%, the dividend rate will increase to 11%

Risk warning: risk of default, economic fluctuations, interest rate and exchange rate risk, geographical situation, etc.