1H24 results slightly lower than market expectations

The company announced its results for the first half of 2024: revenue of 1.849 billion yuan, +73% year over year; gross profit of 0.191 billion yuan, gross margin -6.3ppt to 10.4% year on year; net profit to mother 0.062 billion yuan, -40% year over year, net margin to mother -6.6ppt to 3.3% year on year, slightly lower than market expectations. We believe that some of the exchange earnings fell by about 9 million yuan year on year. Accrued credit impairment losses increased by about 26.8 million yuan year on year The impact of million yuan.

Corresponding to 2Q24: revenue 1.178 billion yuan, +76%/+116%; gross profit 0.107 billion yuan, +27%/+21%, gross margin -3.5pp/ -7.2ppt to 9.1%; net profit to mother 0.027 billion yuan, -21%/-58%, net profit to mother of -2.8pp/ -9.6ppt to 2.3%. 2Q24 single box revenue: single box revenue loop/ +12%/+78% to 14,805 yuan; single box gross profit rank/ -20%/-1% to 1,343 yuan; single box profit round/year ratio -50%/-65% to 343 yuan.

Development trends

Demand in the industry has remained under pressure since this year, but thanks to the acquisition of high-quality assets, the company's container volume is expected to maintain year-on-year growth. Affected by weak overseas demand, organic and inorganic chemicals export value (in RMB) was -6% year-on-year in the first half of 2024 and -4% year-on-year in January-July 2024. Demand recovery in the chemical industry is still ongoing. In 2Q24, the company's total container volume was +22%, with cross-border chemical logistics supply chain services +19%, warehousing +2%, and road transportation +44%, which is better than the industry level. We think the main reason is the company's integration of high-quality resources such as Shangyu Caiyuan New Materials in Shaoxing, Hunan Hongsheng, and Hunan Xinhong. Looking back, we believe that with the release of production capacity from high-quality acquired assets such as Yongtai Transport and Tianjin, the company's container volume is still expected to maintain a year-on-year growth rate superior to that of the industry in 2024.

Affected by the Red Sea incident and the restocking of European and American products, 1H24 sea freight rates rose, and we believe it is expected to support the improvement of the company's profit level. Affected by the Red Sea incident and the impact of European and American product inventory replenishment, the pressure on shipping supply and demand was mitigated, so 1H24 shipping rates rose (CCFI +19%/+53% in 1Q24, respectively), and CCFI was +142% year-on-year in July. We believe that although the Red Sea incident and the continuity of the inventory replenishment cycle are uncertain, the certainty of repairing the company's 2024 single-box profit level continues to increase. If 2H24 companies can improve cost control and reduce the impact of bad debts, the company is expected to obtain stronger performance recovery.

Profit forecasting and valuation

Considering that industry demand is still recovering, we lowered our profit forecasts for 2024 and 2025 by 26% to 0.154 billion yuan and 32% to 0.185 billion yuan, respectively. The current stock price corresponds to 11.5 times the 2024 price-earnings ratio and 9.6 times the 2025 price-earnings ratio. Considering that the company is expected to benefit from industry consolidation in the long term as a leading company in the industry, we maintain an outperforming industry rating. Considering the decline in the sector's valuation center, the target price was lowered by 40% to 20.5 yuan, corresponding to 14 times the 2024 price-earnings ratio and 12 times the 2025 price-earnings ratio, with 20% upward space compared to the current stock price.

risks

Shipping costs have dropped sharply, demand for hazardous chemicals continues to weaken, and the company's new project business progress falls short of expectations.