Incidents:

On August 20, 2024, Shenghang Co., Ltd. released its 2024 semi-annual report.

2024H1 achieved revenue of 0.708 billion yuan, +22.36% year over year; net profit to mother 0.097 billion yuan, +10.48% year over year; net profit without return to mother 0.088 billion yuan, +1.77% year on year; of these, 2024Q2 revenue was 0.331 billion yuan, +15.31% year on year; net profit to mother 0.05 billion yuan, +17.29% year on year; net profit without return to mother 0.042 billion yuan, year on year + 1.82%

Investment highlights:

Domestic and foreign trade hedge against the declining trend in domestic trade, with foreign trade driving revenue growth and weak domestic trade. As of 2024H1, in addition to 5 foreign trade chemical tankers totaling 0.0597 millionDWT, the company also had 10 ships operated by domestic trade to foreign trade. Foreign trade became a strong driver of growth. The revenue of 2024H1 domestic trade chemicals, domestic trade refined oil products, and foreign trade chemicals was 0.373 billion yuan, 0.043 billion yuan, and 0.293 billion yuan, respectively, -11.08%, -13.20%, and +165.80%; gross margins were 31.79%, 19.85%, and 31.12%, respectively, -4.40pct, +14.95pct, and +31.12pct.

The merger and acquisition of Haichanghua landed, and domestic and foreign trade continued to expand in two rounds

The company acquired 44.87% of Haichanghua's shares in June 2024, and held a total of 53.06% of the shares as of 2024H1. Equity and production capacity mergers and acquisitions. As of 2024H1 Company (including Haichanghua), there are 34 domestic trade chemical tankers with a total capacity of 0.2086 million dwt; 13 domestic trade tankers with a total capacity of 0.1307 million dwt; and 5 foreign trade chemical vessels, with a total capacity of 0.0597 million dwt. In addition, a total of 6 ships are currently under construction, with a total capacity of 0.0574 million DWT, including the construction of a 0.013 million DWT foreign trade chemical tanker and two domestic chemical tanks/refined oil tankers with a total capacity of 0.023 million DWT.

Waiting for domestic trade demand to pick up, diversified layout opens up long-term space

Foreign trade is booming, the domestic trade cycle has bottomed out moderately, and the risk of a sharp downturn on the demand side may have been cleared. The company hedged downside demand risks and climbed production capacity to achieve results quarter by quarter; in the long run, the company bucked the trend and integrated mergers and acquisitions, and the two-wheel expansion path of domestic and foreign trade is clear, and the promotion of the four-in-one layout in the fields of liquid ammonia waterway transportation, road transportation, trade management, and warehousing is expected to further open up room for growth.

Profit forecast and investment rating We expect Shenghang's 2024-2026 revenue to be 1.478 billion yuan, 1.924 billion yuan and 2.119 billion yuan, respectively, +17%, 30%, and 10% year-on-year; net profit to mother will be 0.207 billion yuan, 0.269 billion yuan and 0.32 billion yuan, respectively, +14%, +30%, and +19% year-on-year, respectively; corresponding PE is 12.02 times and 9.27 times, respectively With 7.78x, it maintains a “buy” rating.

Risks indicate that chemical demand falls short of expectations; production accidents; mergers and acquisitions fall short of expectations; major policy changes; overseas market risks and exchange rate risks.