The company disclosed its 2024 interim results. The company's revenue for the first half of 2024 was 132.35 yuan, up 1.88% year on year; net profit to mother was 2.497 billion yuan, down 9.88% year on year. By business, net profit from the oil transport/bulk transport/loading/roll-over business reached 16.8/0.24/0.17 billion yuan, respectively, -7.66%/+125.35%/-48.05/ +34.92% year-on-year. We believe that oil transportation is expected to gradually rise in the case of supply-side support, and that the freight rate center is expected to continue to rise when the supply and demand pattern is good. We are optimistic that the company's oil dispersion will improve in both cycles, and maintain the company's holdings increase rating.

Key points to support ratings

Reduced shipments in the Middle East dragged down VLCC spot demand, and the net profit of the oil transport division declined slightly in the first half of the year. The company's oil transportation business achieved revenue of 4.963 billion yuan in the first half of the year, -3.01% year-on-year, and net profit of 1.68 billion yuan, or -7.66% year-on-year. Looking at the subregion, exports from the Gulf of America increased by 11.43% in the first half of the year, and exports from South America increased by 32.29%. However, shipments from the Middle East were affected by production cuts and voluntary production cuts, which decreased significantly compared to the same period in 2022 and 2023. Production in non-OPEC+ countries increased by 1.4 million b/day, and OPEC+ supply decreased by 0.74 million b/day. Spot demand for VLCC in the first half of the year was mainly limited by reduced shipments from Middle Eastern OPEC countries, but VLCC rent continued to rise, 17% higher than the same period last year, and 56% higher than the 10-year average before the Russian-Ukrainian conflict. The medium term supply and demand pattern for oil transportation is still relatively good. As of the end of August this year, VLCC handheld orders accounted for about 7.7% of the global VLCC fleet, which is still at an all-time low. In terms of demand, Clarkson expects the crude oil shipping trade volume to increase by 0.4% to 1.99 billion tons in 2024. We believe that the oil freight rate center is expected to rise steadily in the future.

The rise in freight rates for the Cape of Good Hope ship in the first half of the year led to a strong BDI, and the net profit of the company's distribution division increased dramatically. The company's distribution business achieved revenue of 3.958 billion yuan in the first half of the year, +15.43% year-on-year, and net profit of 0.8 billion yuan, or +125.35% year-on-year. In the first half of this year, world bulk shipping increased by 5% year on year. China's demand was the main driving force for growth, while demand from other regions increased by only 2.6% year on year. China's main bulk imports surged 9% year on year. Among them, coal increased 12%, grain increased 3%, iron ore increased 8%, and small bulk increased 14% year over year. Small bulk imports mainly benefited from the increase in West African bauxite imports. The average BDI in the first half of the year reached 1,836 points, up 57% year on year. Among them, Cape of Good Hope ships contributed the most, up 95% year on year, Panamanian ships increased 31% year on year, and super portable ships increased 28% and 21% respectively.

Looking ahead to the future market, the freight rate center for oil transportation is expected to gradually rise with supply-side support, and distributed transportation is expected to continue to prosper when the supply and demand pattern is good. In the first half of the year, the VLCC market was affected by a combination of continuing deep production cuts by OPEC in the Middle East, oil price fluctuations, and continuing geographical disturbances such as the Red Sea crisis, and China's crude oil demand growth falling short of expectations. The crude oil wheel spot freight performance was poor compared to the same period last year. However, the continued tightening of the supply side has brought some support to the market. We believe that the medium- to long-term supply and demand structure of oil transportation continues to improve markedly. In terms of bulk transportation, as the Federal Reserve enters a cycle of interest rate cuts in the second half of 2024, global macroeconomic fundamentals may gradually improve in the next two years, and the global economic climate is expected to gradually pick up, providing continued support for the dry bulk shipping market. Clarkson expects the world's demand for dry bulk shipping tons to increase by 3.5% in 2024-2025, a slight slowdown from the average growth rate of 4% since 2010. In terms of capacity supply, capacity is expected to grow by about 2% (not considering the dismantling of old ships), 6% compared to the average growth rate in 2010-2023 (including the dismantling of old ships) ) There has been a marked slowdown, and distribution is expected to continue to prosper in the future when the supply and demand pattern is better.

valuations

In the first half of the year, due to a decrease in Middle East shipments dragged down VLCC spot demand, and the company's net profit margin declined, we adjusted our previous profit forecast. We expect the company's net profit to be 5.629/6.651/7.631 billion yuan in 2024-2026, up 16.4%/18.1%/14.7% year-on-year, and EPS is 0.69/0.82/0.94 yuan/share, corresponding to PE 10.0/8.5/7.4 times, respectively. We are still optimistic that the two cycles of oil dispersion will bring to the company Performance is flexible, and the company's holdings increase rating is maintained.

The main risks faced by ratings

Demand for oil transportation fell short of expectations, fuel prices rose sharply, and demand for bulk and consolidated transportation fell short of expectations.