Slowing growth in global oil demand suppresses 1H24 freight rate performance, waiting for demand to pick up to boost freight rates

COSCO Haineng announced 1H24 results: 1) revenue of 11.65 billion yuan, up 0.7% year on year; 2) net profit to mother of 2.61 billion yuan, down 7.1% year on year. Since this year, global oil demand growth has slowed, OPEC production cuts have suppressed transportation volume, and international crude oil freight rates have declined year on year, hampering the company's profit performance. In the medium to long term, supply in the oil transportation market is tightening, and a recovery in demand is expected to drive up freight rates. Based on the company's performance in the first half of the year, we lowered our 24-year net profit forecast by 12% to 5.57 billion yuan, and maintained the 25/26 net profit forecast of 6.8 billion/7.14 billion yuan. Based on 1.2x/2.2x 24E PB (the three-year PB average of the company's H shares plus 1.5 standard deviation/the three-year PB average of A shares plus 1 standard deviation, the valuation premium is mainly due to rising medium- to long-term industry sentiment; 24E BPS 8.0 yuan), a target price of 10.5 HKD/17.6 (previous value: HK$11.3/HK$20.2) was given to maintain the “purchase”.

The gross profit of foreign trade oil transportation declined year-on-year, mainly due to the year-on-year decline in freight rates

1H24's gross profit from foreign trade oil transportation was 2.58 billion yuan, down 8.5% year on year; gross profit margin was 33.2%, down 3.8 pct year on year. Among them, the gross profit of the foreign trade crude oil tanker business was 1.28 billion yuan, down 24.7% year on year (during the same period, the average value of the Baltic crude oil tanker freight index BDTI fell 4.0% year on year; VLCC Middle East to China average freight rate decreased 4.1% year on year). The gross profit of the foreign refined oil business was 0.65 billion yuan, up 26.3% year on year (in the same period, the average value of the Baltic oil tanker freight index BCTI rose 21.1% year on year).

Domestic oil transportation remains steady; LNG carriers contribute stable profits

In terms of domestic oil transportation, 1H24 achieved gross profit of 0.73 billion yuan, an increase of 0.6% year on year; gross profit margin was 24.8%, up 1.4 pct year on year. Domestic oil transportation market demand is stable, the company's market share is leading, and steady performance has been achieved. In terms of LNG business, 1H24 contributed 0.4 billion yuan to mother's net profit, which was the same as the previous year. In recent years, the company has continued to expand its LNG fleet. As of 1H24, the company has operated 45 LNG ships and 40 LNG ships are under construction.

The supply of crude oil tankers is tightening in the medium to long term, and the recovery in demand is expected to drive higher freight prices. According to Clarksons data, the 24/25/26 global crude oil tanker supply growth rate is 0.8%/1.5%/3.0% vs. demand growth rate (ton nautical mile) 3.2%/2.5%/2.8%; global refined tanker supply growth rate 2.4%/5.8%/5.9% vs. demand growth rate (ton nautical mile) 7.0%/-1.3%/3.0%%. Supply in the crude oil tanker market is tightening, and the supply and demand structure is superior to that of the finished tanker market. Currently, global oil demand is weak, and waiting for demand to pick up is expected to drive higher crude oil freight rates.

Risk warning: freight rates are lower than expected; demand for crude oil and refined oil products is lower than expected; supply is higher than expected; geopolitical risks.