China Southern Oil released its 2024 mid-year report, with excellent performance in Q2. China Merchants CNPC released its 2024 semi-annual report. 2024H1 achieved operating income of 3.528 billion yuan, +11.78% year over year, realized net profit of 1.22 billion yuan, +44.76% year over year, and realized net profit without return to mother of 1.028 billion yuan, +23.97% year over year. Among them, asset disposal revenue was approximately 0.21 billion yuan due to the disposal of 3 old ships.
The Red Sea crisis stimulated demand, and the mismatch between supply and demand brought about a boom in the international transportation market for refined oil products. On the demand side, on the one hand, global refining is expected to grow by 3.2% in 2024, driving an increase in demand for marine trade of refined oil products; on the other hand, due to the Red Sea crisis, the average sailing mileage increase due to the Red Sea crisis, increasing the average sailing mileage, driving a 7% increase in the number of nautical miles per ton of refined oil products worldwide. On the supply side, according to Clarksons data, as of June 2024, there were 1,760 MR ships worldwide, with 242 ships ordered, accounting for 13.8%. It is expected that 27 ships will continue to be delivered in 2024. Combined with new environmental regulations, the supply of effective capacity for finished tankers is limited. Under the pattern of short supply, freight rates showed strong performance. The average value of the BCTI in the first half of the year was 996 points, +20.28% year over year. The average TCE for the TC7 route for the transportation of refined oil products (Singapore to the east coast of Australia) was about 0.0377 million US dollars/day, or +31.81% year over year.
Strengthen cross-regional operational capabilities and keep up with the trend of energy refining eastward. In August 2024, CMB completed its first cruise for refined oil products from the Persian Gulf to the Gulf of America. The company's MR POOL Chaoge ship sailed from the Persian Gulf, passing through the Arabian Sea, the Indian Ocean, the Atlantic Ocean, and the Caribbean, and reached the Gulf of Mexico. It sailed for 44 days, over 0.013 million nautical miles, and successfully unloaded at the Port of Houston in the US. It not only once again set a new record of heavy duty sailing mileage for the company's refined oil tankers, but also marked a breakthrough in China Merchants China Oil's promotion market region “from east and west” to explore and expand global operations.
Actively optimize the fleet structure. Currently, CMB still has problems with an unreasonable fleet structure and aging of all major fleets, causing the company to face problems of potential decline in competitiveness and reduced customer satisfaction acceptance. To this end, the company accelerated the disposal of old capacity. The company transferred the “CSC BRAVE”/“Changhang Discovery” wheel/ “CSC RISINGSUN” wheel at a price of 18.95 million/0.143 billion yuan/22.65 million US dollars respectively, in an effort to complete the fleet renewal as soon as possible.
Risk warning: The global macroeconomy falls short of expectations, safety incidents, the release of supply of finished tankers exceeding expectations, etc.
Investment advice:
Factors such as the post-epidemic recovery of the global economy, the entry into force of the Russian ban on refined oil products, the continued eastward migration of global energy refining, and the aging of ships are expected to increase markedly, and freight rates are expected to remain high. As a leading company in the transportation of refined oil products in the Far East, China Merchants China Petroleum is expected to fully benefit. Maintain the 2024-2026 net profit forecast of 2.12/2.26/2.37 billion yuan, corresponding to PE valuation 6.8/6.4/6.1 times, and maintain a “superior to the market” rating.