Key points of investment
The world's leading container liner company, operating under two brands, COSCO Maritime Control is the listed flagship enterprise and capital platform for COSCO SHIPPING Group's main shipping and terminal business. Currently, it is the fourth largest container liner company in the world, mainly engaged in container shipping business and terminal business. The container shipping business accounts for more than 90% of revenue and gross profit. It is mainly operated by COSCO SHIPPING, a wholly-owned subsidiary, and Oriental Overseas International, an indirect holding subsidiary. As of 24Q1, COSCO Offshore's self-operated container fleet was 510 ships, with a capacity of more than 3.1 millionteU, and the fleet size remained at the top of the industry.
21-22 experienced a sharp upward cycle, with profits of nearly 200 billion dollars in two years. In 2021-2022, the shipping market boom increased. China's export container freight index (CCFI) rose from 984 points in 2020 to 2626 points and 2,792 points, driving the company's net profit to mother from 9.9 billion yuan in 2020 to 89.3 and 109.6 billion yuan. Since 2023, as CCFI's freight rate fell back to 937 points, the company achieved net profit of 23.9 billion yuan, or -78% year-on-year. By the end of 2023, the company's book monetary capital reached $182.3 billion.
The shipping market will welcome another boom cycle since 2024
Supply side: Ship detours consume stock supply, and port congestion increases absorption of effective capacity. The conflict between Palestine and Israel broke out in October 2023, and the Houthis in Yemen gradually expanded their maritime attacks on Israel. Several merchant ships were attacked, and airlines announced detours to the Cape of Good Hope one after another, driving a 29% increase in flight range. On the other hand, detours have led to a sharp decline in ship turnover efficiency. Since 2024, the punctuality rate of container ships has declined. At the same time, in the context of supply chain disruptions, some ports have experienced congestion, leading to a continuous tightening of effective capacity.
Demand side: Multiple factors resonate, and demand has increased significantly. As of May 2024, the global shipping container trade index reached a new five-year high, +5.7% year over year. In January-April, China's port container throughput was +9% year-on-year. 1) Europe and the US entered a new inventory replenishment cycle, and the recovery in import trade volume growth led to an increase in shipping trade volume. In April, the 27 EU countries' commodity import trade volume was +0.3% year-on-year, the first time since February 2023 that the growth rate was corrected. 2) Geopolitical events have led to an increase in demand for safe inventory, and the supply chain bullwhip effect amplifies demand and further exacerbates the conflict between supply and demand; 3) Tariff expectations drive shippers' willingness to ship early.
Against the backdrop of improving supply and demand, the shipping market is once again entering a boom cycle. Since the beginning of the year (as of July 12), the SCFI index is +149% year-on-year, the SCFI European Index is +244%, and SCFI is +263%.
Profit forecasting and valuation
Since 2024, with the rise in freight rates, the company's performance may experience another significant increase. As of July 12, the year-to-date average of the CCFI Composite Index was about 1,417 points, +41% year over year. We expect the company to achieve operating income of 2812, 2276, and 236.7 billion yuan in 2024-2026, and achieve net profit of 468, 263, and 26.3 billion yuan. Based on a 30% to 50% dividend ratio, the current price (2024-7-17) corresponds to a dividend ratio of about 7%-11%, giving it an “increase in weight” rating.
Risk warning: geopolitical risk, risk of demand falling short of expectations, etc.