1H24 results are in line with our expectations

The company announced 1H24's results: revenue of 3.528 billion yuan, +11.8% year over month, +16.0% month on month; net profit of 1.22 billion yuan, corresponding to profit of 0.25 yuan per share, +44.8% year on year, +70.9% month on month. 1H24 sells 3 old ships. If ship sales are not taken into account, 1H24 company deducts net profit of 1.028 billion yuan, +24.0% year over month, +45.2% month over month; corresponding to 2Q24, achieved revenue of 1.689 billion yuan, +9.8% YoY, -8.1% month-on-month, achieved net profit of 0.549 billion yuan, +25.7% YoY, -18.2% month-on-month, net non-return net profit of 0.476 billion yuan, YoY +9.1%, and -13.9% month-on-month. The company's performance was in line with our expectations.

Off-season freight rates declined month-on-month and increased year-on-year in the second quarter, and the company's profit was consistent with changes in freight rates. Affected by the Red Sea detour, although the second quarter was an off-season, refined oil freight rates improved year-on-year. Due to a lag of about 2 weeks between the signing of freight rates for refined oil products and actual transportation, 2Q24's profit period actually corresponded to mid-March 2024 to mid-June 2024. BCTI freight rates within the Pacific region where the company mainly operated during this period were -2.5% month-on-month and +18.5% year-on-year.

Development trends

The boom cycle is expected to continue, and we look forward to flexible freight rates during the peak season in the fourth quarter. Since the beginning of the year, due to the consumption of effective capacity by the Red Sea detour, the bottom and center of MR ship freight rates have risen markedly. As of August 16, the average freight rate of MR ships on various routes has increased by 0.0045 million US dollars/day over the same period last year. In the long run, the supply and demand pattern of the industry continues to improve. According to Clarksons, current MR ship orders account for 16% of capacity, while orders for ships aged 15 and over account for 41% of capacity. New ship orders still cannot meet future ship renewal and replacement needs. Furthermore, we believe that factors such as stricter environmental requirements and increased efficiency loss due to aging of the fleet will all limit the effective capacity of MR ships, and the boom cycle of the industry is expected to continue. Currently, it is a traditional low season, with freight rates falling 2Q month-on-month, but we think that as the northern hemisphere enters the peak heating season, freight rate flexibility is expected to show in the fourth quarter.

The company optimizes its fleet structure and balance sheet, implements repurchases to enhance shareholder returns, and dividend expectations are expected to further support the company's valuation. Since the beginning of the year, the company has sold 3 old ships to optimize its fleet structure, and repurchased 2 financial leased ships in the first half of the year to further reduce the level of interest-bearing debt. The company's shareholder returns continued to improve. At the beginning of the year, the company passed a share repurchase bill, and the repurchase of shares accounted for 1.05% of the total share capital. Furthermore, in the context of the implementation of the new company law, the undistributed profits of the company's parent company are expected to reverse losses at an accelerated pace. After the correction, the company's parent company lost 1.98 billion yuan in undistributed profits by the end of the first quarter, a loss of 0.21 billion yuan from the end of the first quarter.

Profit forecasting and valuation

We keep the company's profit forecast unchanged. The current stock price corresponds to 6.4 times the 2024 price-earnings ratio and 6.4 times the 2025 price-earnings ratio. Maintaining an outperforming industry rating, considering the declining risk appetite in the industry, the target price was lowered by 16.0% to 4.2 yuan/share, corresponding to 8.9 times the 2024 price-earnings ratio and 8.9 times the 2025 price-earnings ratio. There is 39.1% upside compared to the current stock price.

risks

The global economic growth rate is declining, and there is a risk of geopolitical changes.