Company announcement 2024 mid-year report forecast: 1) Performance: In the first half of 2024, it is expected to achieve net profit of 2.55 billion yuan, -9.1% year over year; net profit after deducting non-return to mother of 2.55 billion yuan, +5.4% year over year. Among them, 24Q2 is expected to achieve net profit of 1.314 billion yuan, +6.3% month-on-month and -23.2% year-on-year; net profit without return to mother of 1.314 billion yuan, +6.3% month-on-month, and -14.5% year-on-year. 2) The difference in caliber before and after deduction is mainly due to the sale of 5 ships in the first half of 2023, which generated disposal revenue of 0.398 billion yuan, and there were no sales of ships in the first half of 2024.
3) Freight price index: Considering the lag in transmission of the freight rate index to performance, refer to the VLCC Middle East-China route (TD3C) average TCE value of 44,451 US dollars/day, -12.1% year over year, -12.1%, month-on-month (12/23 to 2/24, same below) +6.7%; Suezmax TCE average was 50,830 US dollars/day, -14.8% month-on-month; the average value of Aframax TCE was 48,028 US dollars/day, -33.6% yoy , -19.7% month-on-month; average TCE value for finished tankers was 40,181 US dollars/day, +7.6% YoY and +0.25% month-on-month.
4) According to the company announcement, the freight rate level in the international oil transportation market from January to June 2024 shows a trend where supply and demand are basically favorable; as the owner of all types of tankers, the company fully captured the market opportunities of different ship types, scientifically adjusted the global capacity layout and ship dock maintenance, and achieved an increase in overall fleet revenue.
The supply logic of the oil transportation industry is clear, and the boom cycle is expected to improve.
1) Supply side: a) There will be insufficient new capacity in the next 2 to 3 years. As of June '24, crude oil tanker orders accounted for 7.7%, which is still low for nearly 28 years; Clarksons expects crude oil tanker capacity growth rates to be -0.1% and 1.0% in 2024 and 2025 respectively, far below the average of 3.1% from 2010 to 2023. b) Effective capacity stocks are facing potential contraction. Currently, the tanker fleet has serious aging problems (it is expected that by the end of '26, the proportion of tankers aged 20 and over will further increase to 23%, and the proportion of those aged 15 and over will be close to 50%); increasingly strict environmental policies (such as CII, EU ETS, FuelEU) will limit the effective capacity of the industry over a longer period of time, such as declining actual turnover and rising compliance costs. c) The increase in forward supply has not yet been opened. The number of new orders for tankers has increased since '23, but the share of hand orders is still at a historically low level, and delivery and yield considerations still suppress VLCC's willingness to place orders; there is no need to worry too much about the increase in new tanker orders; the tanker fleet has a relatively rigid demand for upgrading.
2) Demand side, a) seasonal factors, currently in the low demand season, and freight rates are expected to gradually recover after the maintenance period ends; b) On the supply side of crude oil, the increase in pallets on the long Atlantic Ocean route continues to support the increase in demand in tons of nautical miles. OPEC announced the gradual cancellation of 2.2 million b/d of voluntary additional production cuts at the end of September; c) Continued disturbances in geographical events are driving up asset risk premiums.
Investment advice: 1) Profit forecast: Based on current market demand and freight rate levels, we adjusted the 2024-2026 net profit forecast to be 6.41, 7.71, and 8.32 billion yuan (the original forecast was 6.64, 7.45, and 8.31 billion yuan), respectively. The corresponding EPS was 1.34, 1.62, and 1.74 yuan, respectively, and the corresponding PE was 12, 10, and 9, respectively. 2) As a highly flexible variety, oil transportation has a clear supply logic. Once demand rises and freight rate flexibility is huge, we maintain the original valuation method to give a target price of 21 yuan, which is expected to be 35% more space than the current price, and maintain a “recommended” rating.
Risk warning: demand falls short of expectations, geopolitical events, etc.