Looking ahead to the second half of the year, the transportation industry is still affected by the sustainability of the macro economy. Based on the operating data for July and August, the year-on-year growth rate of the public transportation, rail, and port industries may experience a slight downturn compared to the first half of the year; oil transportation, bulk cargo, and express logistics are expected to see a recovery in the fourth quarter.
According to the Futu Securities research report, in the first half of the year, various sub-sectors were affected by the macro economy. The operating data for public transportation, railroads, aviation airports, and oil transportation were relatively under pressure, while the express delivery business showed relatively good growth. The operating data for international trade, bulk cargo transportation, ports, and cross-border logistics all demonstrated significant growth. Looking ahead to the second half of the year, the transportation industry is still affected by the sustainability of the macro economy. Based on the operating data for July and August, the year-on-year growth rate of the public transportation, rail, and port industries may experience a slight downturn compared to the first half of the year; oil transportation, bulk cargo, and express logistics are expected to see a recovery in the fourth quarter.
The main points of China Merchants Securities are as follows:
Highway Sector: The traffic flow on expressways declined slightly, and the performance of key targets met expectations.
24H1 mainline network traffic volume increased by 1.4% year-on-year. In terms of highway types, due to downgrading of consumption, the traffic volume of national highways increased at a faster rate than expressways. General expressway traffic volume increased by 2%, while the traffic volume of high-speed highways decreased by 1.4% year-on-year. In terms of passenger transportation, the high base from the explosive growth in travel volume last year affected passenger transportation in the first half of last year. As for freight transportation, the demand for trucking is relatively average due to the impact of the macro economy. The overall performance of key targets in the first half of the year met expectations. Based on the operating data from July to August, it is expected that the year-on-year growth rate of road traffic volume in the second half of 2024 may experience a slight downturn, and freight transportation may continue to remain the same or decrease slightly year-on-year.
Port Sector: The container throughput has shown relatively fast growth, while the performance of bulk cargo has been weak.
24H1 national port cargo throughput reached 8.56 billion tons, a year-on-year increase of 4.6%. Among them, bulk cargo increased by 2.4% and containers by 8.5%. China Merchants Port Group exceeded expectations, mainly due to the confirmation of non-economic behavior by Shanghai International Port Group and the company, while the container business performed well. Tangshan Port Group exceeded expectations, supported by high growth in iron ore business volume. The operating condition of bulk cargo will maintain a weak balance in the second half of 2024; although the container volume in Q3 is still supported, attention needs to be paid to whether the export growth slows down in Q4.
Railway sector: The high-speed railway network has driven the rapid growth of passenger transportation, and the performance of key symbols meets expectations.
With the continuous connection of the high-speed railway network, the year-on-year railway passenger volume in the first seven months of 24 has increased by 15.7%. The freight volume is relatively stable, with a 2.2% year-on-year growth in railway freight volume. Among the key symbols, the Beijing-Shanghai high-speed railway has exceeded expectations, mainly due to the increase in cross-line train mileage, and the Guangzhou-Shenzhen line has met expectations. However, the Daqin line was lower than expected, primarily due to weak coal shipment volume. In the second half of 24, with the enhanced effect of the high-speed railway network, railway passenger volume will continue to grow, with an expected full-year growth rate of 10%-15%. It is expected that the freight volume will remain relatively stable year-on-year in the second half.
Shipping sector: The shipping market's prosperity has significantly increased in the first half of 24, and we are looking forward to an improvement in oil and dry bulk transportation market sentiments in Q4.
In terms of shipping, benefiting from the Red Sea detour and the improved supply-demand situation, the SCFI freight rates in the first half of 24 increased by 138% year-on-year. The overall performance of Cosco Shipping Holdings in the first half of 24 is in line with expectations. In terms of oil and dry bulk transportation, the VLCC market was constrained by Middle East production cuts, while the small and medium-sized oil tanker market benefited from geopolitical conflicts. The year-on-year changes in TD3C and TC7 freight rates in the first half of 24 were -4% and +35% respectively. There is a strong demand for imported bulk commodities, with a 59% year-on-year increase in BDI in the first half of 24. Cosco Shipping Energy's performance in the first half of 24 has achieved growth, while China Merchants Energy Shipping slightly fell below expectations, mainly due to the month-on-month decline in refined oil freight rates. China Merchants Energy Shipping's main reason for falling below expectations in the first half of 24 was the significant impact of income tax arising from overseas companies distributing dividends to the mainland, resulting in a decline in profits. Cosco Shipping Specialized Carriers exceeded expectations in the first half of 24, mainly due to the increased profitability from the consolidation of COSCO car carriers and the disposal of ships. It is expected that the high level of shipping market prosperity in the second half of 24 will decrease. However, there will be an improvement in the oil and dry bulk transportation market sentiment in Q4.
Express logistics sector: The combination of increased volume, price hikes, and cost optimization has led to widespread profit improvement, in line with expectations.
Benefiting from the rapid growth of the lower-tier market and reverse logistics, the express delivery business volume in the first half of the year increased by 23% year-on-year, while the average price decreased by 7%. In terms of profitability, ZTO Express's single ticket profitability was basically flat year-on-year, with profit growth rate roughly in line with business growth rate, while YTO Express and Yunda single ticket profitability decreased. The rapid growth in volume drove the growth in profitability. In the case of STO Express, in the situation of a substantial increase in business volume, the single ticket gross profit significantly improved, combined with the low base, resulting in the highest performance increase. It is expected that the business volume will continue to maintain a high growth rate in the second half of 24, but the growth rate will decline with the increase in base. In a recent development, the State Post Bureau has called for opposition to "internal competition," while the industry is entering the peak season, and price competition is expected to gradually slow down. It is anticipated that cost will continue to be optimized due to the benefit of scale and efficiency improvements. Overall, industry profits are expected to maintain a rapid rate of growth.
Logistics supply chain sector: International freight prices are rising, and domestic contract logistics are under pressure.
With cross-border air transportation benefiting from the growth in cross-border e-commerce demand and the rise in marine transportation prices, the average outbound air transportation prices from Shanghai increased by 4% in the first half of the year. Freight forwarders had a significant increase in marine transportation rates, but due to the increased industry transparency and significant pressure from cargo owners, the profit margin of freight forwarders was squeezed. Contract logistics: Due to weak demand and significant pressure to reduce costs, there is a significant downward pressure on contract logistics prices. Eastern Air Logistics: Benefiting from the increase in air transportation rates since Q2, the profits in the first half of the year remained relatively stable. Sinotrans: The pressure on contract logistics and ongoing negotiations for some air freight subsidies led to a decline in performance in the first half of the year, but strengthened cost control in Q2 narrowed the decline in performance. S.F. Holding: The improvement in efficiency and cost optimization drove the company's performance to exceed expectations in Q2.
Industry outlook for the second half of the year: Cross-border aviation: The demand for cross-border e-commerce is expected to maintain high growth, and the year-on-year increase in international air transportation prices will gradually narrow. Freight forwarders: The growth rate of demand is expected to slow down, but with the normalization of transportation prices, overall profitability will remain relatively stable. Contract logistics: The demand and price end are expected to remain under pressure in the second half of the year.
Aviation sector: Passenger traffic has basically recovered from the post-pandemic period, but off-peak ticket prices remain weak.
The passenger transportation volume of civil aviation in the first half of 2024 increased by 23.5% year-on-year, compared with +9.0% in the same period of 2019. Among them, domestic air routes increased by 16.4% compared with the same period of 2019, reaching 81.7% of the same period in 2019. The average revenue per passenger kilometer of the three major airlines in the first half of the year decreased by 8% year-on-year; international ticket prices fell sharply, returning to normal levels. Key targets: Air China, China Southern Airlines: Q2 losses widened year-on-year, mainly due to insufficient off-peak business demand and lower ticket prices; Spring Airlines: the lowest decline in ticket prices in the industry, excellent passenger load factor, and the advantage of low cost highlighted, Q2 performance slightly exceeded expectations; Juneyao Airlines: ticket prices under pressure, but cost control effects are evident, achieving profitability in Q2. The trend of oil prices and exchange rates has a relatively positive impact on airline profits.
Airport sector: The profitability of first-tier airports is steadily recovering, but the recovery of duty-free business still takes time.
With the continuous growth of domestic passenger volume and the steady recovery of international flights, the operating data of airports in the first half of 2024 improved significantly compared with the same period in 2019. In the first half of 2024, the passenger throughput of airports increased by 21% year-on-year, compared with +7% in 2019; aircraft takeoffs and landings increased by 8% year-on-year, compared with +7% in 2019; and cargo throughput increased by 24% year-on-year, compared with +18% in 2019. Benefiting from the rapid recovery of aviation-related businesses, the performance of first-tier airports continues to recover as expected. However, in the current consumption environment, the recovery of duty-free business still takes time. Key targets, Shanghai International Airport: The international and regional passenger volume of Pudong Airport in Q2 has recovered to 79% of the same period in 2019, and the performance continues to recover, but the lower duty-free deduction rate has affected the level of business recovery; Guangzhou Baiyun International Airport: the effect of cost control is evident, and the profit margin has increased significantly. Outlook for the second half of the year: First-tier airports will benefit from the recovery of passenger and flight volumes, and overall profitability is expected to steadily recover this year. Pay attention to the progress of international passenger recovery and changes in consumer demand.
Investment suggestions: Continue to pay attention to the value of dividend sectors, and recommend key targets: Guangdong Expressway (000429.SZ), China Merchants Expressway (001965.SZ), Jiangsu Expressway (600377.SH); it is recommended to pay attention to: Shandong Expressway (600350.SH), Anhui Expressway (600012.SH), Tangshan Port Group (601000.SH), Qingdao Port International (601298.SH). In the shipping sector, the prosperity of the oil shipping sector is about to enter a bottoming out and rebound trend. It is recommended to target China Merchants Energy Shipping (601975.SH) and pay attention to COSCO Shipping Specialized Carriers (600428.SH), which may perform well in the second half of the year. In the logistics sector, it is recommended to focus on undervalued leaders in the express delivery industry, such as ZTO Express-W (02057) and YTO Express Group (600233.SH), as well as sinotrans limited (601598.SH), which has high dividend yield and low valuation, and Jiayou International Logistics (603871.SH) with good performance. Pay attention to Donghai Airlines Logistics (601156.SH). In the aviation and airport sector, it is recommended to target Spring Airlines (601021.SH).
Risk factors: Unexpected macroeconomic downturn, significant increase in oil prices, significant devaluation of the RMB exchange rate, deterioration of express delivery price wars, major safety accidents.
