Incident: COSCO Haineng announced its performance forecast for the first half of 2024. The company's net profit for the first half of 2024 was about 2.55 billion yuan, a year-on-year decline of about 9.1%; net profit after deducting non-return to mother was about 2.55 billion yuan, which is expected to increase by about 5.4% year on year. The company's net profit for the second quarter was about 1.314 billion yuan, up 6.3% from the first quarter and down by about 23.2% year on year. The year-on-year decline was mainly due to China's crude oil overbought in March-April 2023, which led to a high freight base. The company's second-quarter results are close to our second-quarter earnings forecasts, and the results are in line with expectations.
The contribution of the VLCC ship model remained flat month-on-month, while the LR model contributed to a month-on-month increase in freight rate due to geographical conflicts. The company's net profit for the second quarter of 2024 increased by about 0.08 billion yuan month-on-month. It is estimated that it will mainly be contributed by the foreign trade tanker business. Since revenue was only confirmed after the voyage was completed, the company's performance lagged behind VLCC freight rates by about 1 month, and small to medium tankers by about half a month. According to Clarkson's freight rate, the average VLCC freight rate from December 2023 to February 2024 was 50,218 US dollars/day, which is close to the company's first quarter performance period (December 2023 to February 2024) freight rate of 50,856 US dollars/day. It is expected that VLCC tankers contributed to the company's performance flat month-on-month; in addition, during the performance period, LR2 (the company operates 8 ships in foreign trade) and LR1 (12 ships) freight rates increased by 9% and 8%, respectively, over the first quarter results period. billion yuan.
The tanker boom is determined, and strong boat prices and term rental prices reflect industry confidence. After June, the VLCC tanker market entered a low season, and freight rates pulled back under pressure. The average VLCC freight rate recorded 29,204 US dollars/day according to Clarkson statistics on June 28, down 48.2% from the recent high (May 17); in contrast, the 1-year rental rate for VLCC energy-saving ships remained unchanged and still recorded $51,750 per day; the price of a 10-year-old VLCC used ship remained unchanged at 85 million US dollars. To a certain extent, it reflects the industry's determination of the popularity of VLCC. As oil tankers enter the peak season in the 3-4 quarter, freight rates are expected to once again drive up shipping prices. The rise in ship prices is driving up replacement costs for shipping companies, and replacement costs continue to rise as a downward margin of safety.
Looking at upward space, the current used ship price is only 63% of the 2008 high of 0.135 billion US dollars. Considering inflation, the current value of used ships is only about 35% of the historical high, and there is still plenty of room for improvement in the company's fleet replacement costs.
The scarcity of supply is compounded by geopolitical options, reaffirming the current location of oil transportation. Currently, oil transportation is in a long-term upward cycle (asset prices are rising, the fleet is aging, and shipyard production capacity is insufficient), and the mid-cycle fluctuates sideways, waiting for a breakthrough point (shipowners' confidence in determining prosperity vs. resisting the rapid rise in freight rates; weak demand vs. the release of demand for replenishment due to low inventory; the accelerated aging of the fleet and reduced operating efficiency vs. low willingness of shipowners to dismantle ships due to high freight rates). Short-term freight rates are under pressure from weak demand and regional supply, but the bottom of freight rates is already rising steadily. Considering that China may start supplementing crude oil inventories in July and Saudi Arabia starting to consider withdrawing from some voluntary production cuts in September, the peak oil transportation season can still be expected in the fourth quarter of this year. It emphasizes upward freight rate options brought about by global political uncertainty and frequent geographical events in the context of determining scarce capacity supply in the oil transportation market.
The profit forecast was lowered and the “buy” rating was maintained. Considering that in the first half of the year due to weak demand performance, the average VLCC freight rate in the first half of the year was 46,959 US dollars/day, and the 2024-2025 freight rate forecast was lowered from 6.5 and 75,000 US dollars/day to 60 and 70,000 US dollars/day, and the rate remained unchanged in 2026. Net profit due to mother for 2024-2026 was reduced from 6.9, 8.1, and 9.2 billion yuan to 58, 70, and 8.4 billion yuan. Maintaining a “buy” rating considering the long-term viability of oil transportation cycles.
Risk warning: macroeconomic drag on oil demand falls short of expectations; geographical events; international relations; RMB exchange rate fluctuations;