Summary content

Incident: China Merchants CNPC released its 2024 semi-annual report: The company achieved revenue of 3.528 billion yuan in the first half of 2024, +11.78% year over year, and realized net profit of 1.22 billion yuan to mother, +44.76% year over year, and basic earnings per share of 0.25 yuan/share.

The average value of the refined oil transport index (BCTI) rose 20.28% year on year in the first half of 2024. In the first half of 2024, due to geopolitical and other factors, the utilization rate of refined oil tankers increased, and the tight balance of effective capacity led to increased price fluctuations in the international refined oil market. The Petroleum Transportation Index (BCTI) had a high of 1,411 points and a low of 741 points in the first half of the year. The average value was 996 points, up 20.28% from the average of 828 points in the same period last year.

Increased gross margin combined with revenue from disposal of old ships is the main reason for the increase in net profit to mother. 1) In the first half of 2024, the company achieved a gross profit margin of 35.72%, an increase of 2.21 percentage points over the previous year, mainly due to a 20.28% increase in the average value of the refined oil transportation index (BCTI). 2) The company achieved asset disposal revenue of 0.21 billion yuan in the first half of 2024, an increase of 0.194 billion yuan over the previous year, contributing 51.50% to profit growth in the first half of 2024. 3) The company achieved an increase in asset disposal revenue in the first half of 2024, mainly due to the disposal of 3 old ships by China Merchants CNPC in the first half of 2024 and the disposal of 1 old ship in the same period of 2023.

Delivery of new ships is expected to be limited throughout 2024, and the number of nautical miles per tonne of refined oil products will increase by about 7% in terms of demand. In terms of capacity supply, according to Clarkson statistics, as of the end of June 2024, the world currently had 1,760 MR ships and 242 ship orders, accounting for 13.8% of orders. Among them, 27 more ships are expected to be delivered in 2024, and the number of new ships delivered is limited; from the transportation demand side, the company expects global refining to grow by 3.2% in 2024, and the marine trade volume of refined oil products will increase by 1.8%. Due to the ongoing impact of the Red Sea crisis, the volume of goods passing through the Suez Canal dropped by 65%, while the volume of goods passing around the Cape of Good Hope was nearly 3 times that of previous years. The increase in average sailing mileage increased the number of nautical miles per ton of refined oil products worldwide by about 7%.

Optimistic about the freight rate opportunities that are expected to be brought about by the continuing widening gap in the growth rate between shipping supply and demand for refined oil products, and maintain the “buy” rating. We expect earnings per share for 2024-2026 to be 0.42/0.47/0.51 yuan, respectively, corresponding PE 7.2/6.5/5.9 times. We consider that the growth gap between supply and demand for refined oil shipping continues to widen, which is expected to lead to an increase in freight rates, and that China Merchants CNPC's own fleet size is relatively high, and performance flexibility is high, maintaining a “buy” rating.

Risk warning: The shipping demand for refined oil products falls short of expectations, the dismantling of old ships falls short of expectations, and the risk of oil price fluctuations.