Entering 2024, the COSCO Haite multi-purpose ship market is benefiting from the upward boom in the shipping industry. At the same time, medium- to long-term automobile exports and shipments continue to grow rapidly, and the company's performance is expected to improve quarter by quarter. Currently, the company's valuation is 9.4x corresponding to 2024 PE, maintaining a “highly recommended” rating.
COSCO HITE is the world's leading special fleet operator. The main types of ships are multi-purpose ships and heavy gondolas; pulp ships and roll-over ships; semi-submersible ships; asphalt ships and timber ships, which mainly expand the three key industrial chains of pulp logistics, engineering project logistics, and automobile logistics. The top four types of goods carried by the company in 2023 were machinery and equipment, pulp products, selected mines, and asphalt, accounting for 41%/32%/5%/3% of the total freight volume, respectively.
Multi-purpose ships and heavy gondolas: The company's profit base market, and the MPP market will benefit from rising freight rates in 24 years. Due to the high degree of compatibility between multi-purpose ships and container ships, the consolidation cycle has an impact on the MPP market. At present, the continued spread of the Red Sea incident had a booster effect on MPP freight rates in Q1 2024. It was observed that MPP freight rates of 21,000 DWT reached 1,900 $/day in June, an increase of 11% over December 2023.
Semi-submersible ships: Industry barriers are high, and seabreeze installations and oil and gas extraction support the boom. The semi-submersible ship market is in a state of monopoly competition, and TOP7 shipowners occupy the vast majority of the market share. The company is positioned in the high-end market, and the rental level has always been in a high position. In the context of the global energy transition, the growth in offshore wind power installation demand and offshore oil and gas extraction demand has led to a strong recovery in the offshore industry market.
Pulp ships and motor carriers: Automobile exports will contribute significantly. Pulp transportation has been mainly based on COA contracts for a long time, and the volume of goods has remained basically stable. China's demand for pulp imports has remained stable for a long time due to factors such as the “waste ban” and the continuous operation of pulp mills. Furthermore, the company creatively used return pulp ships to export cars under the frame box model, reducing costs and increasing efficiency while making up for the lack of automobile shipping capacity (currently operated by Guangzhou Yuanhai Joint Venture). At present, China's automobile exports remain strong, with a cumulative total of 250,000 vehicles shipped in 23 years. Automobile shipments are expected to continue to increase in 24 years. Looking forward to the future, once the business model is stabilized, COSCO Haite and COSCO Motor Ships are expected to be able to carry a considerable amount of automobile shipments every year.
Ro-Ro shipping orders currently in force for offshore carriers are expected to be delivered sequentially from the second half of '24 to '25.
Investment suggestions: 1) The Red Sea crisis and the maintenance of a high shipping boom still strongly support MPP market freight rates; 2) optimistic about the huge market growth space for automobile export logistics; 3) increasing the annual cash dividend ratio to 50%, increasing shareholder returns; 4) In the future, the company will strengthen the level of governance while emphasizing cost control. Profit for 24-26 is estimated to be $14/18/2.1 billion, up 34%/28%/14% year over year, respectively. The growth rate is good, corresponding to 24-year profit. The PE valuation is 9.4x, maintaining the “Highly Recommended” rating.
Risk warning: macroeconomic decline, multi-purpose ship and auto boat market decline, performance estimation risks, etc.