Description of the event

Qingdao Port released its 2024 semi-annual report. In the first half of the year, the company achieved revenue of 9.07 billion yuan, a year-on-year decrease of 1.0%; achieved gross profit of 3.38 billion yuan, a gross profit margin of 37.2%, an increase of 0.4 percentage points over the same period last year; and realized attributable net profit of 2.64 billion yuan, an increase of 3.0% over the previous year. On a quarterly basis, in the second quarter of 2024, the company achieved revenue of 4.64 billion yuan, a year-on-year increase of 0.7%; realized net profit of 1.32 billion yuan, an increase of 1.6% over the previous year.

Incident comments

Container throughput is growing steadily, and the share of performance continues to rise. External demand remained strong. Qingdao Port's container throughput in the first half of the year was 15.82 millionteU, up 9.0% year on year (0.4 percentage points higher than the 8.6% growth rate of container throughput in coastal ports across the country). Overall, the throughput growth rate was consistent with the export growth rate of the hinterland Shandong Province. In the first half of the year, Shandong Province's total exports in RMB increased 9.1% year over year. Benefiting from steady growth in throughput, the share of segment performance continues to increase. In the first half of the year, the container division's net profit was 0.95 billion yuan, up 20.1% year on year; the share of segment performance increased to 28.9%, up 4.8 percentage points from the same period last year. Overall, the container sector achieved double growth in throughput and performance, which continues to confirm the growth of the sector.

The performance of the liquid bulk sector is under pressure, mainly affected by weak downstream demand compounded by the commissioning of surrounding crude oil terminals. The net profit of the liquid bulk sector in the first half of the year was 1.03 billion yuan, down 5.1% year on year; performance accounted for 33.2%, down 2.2 percentage points from the same period last year. The overall efficiency of domestic refineries in the first half of the year was poor. The average operating rate of Shandong refining in 1Q24 was 57.1%; the average operating rate in 2Q24 was 54.1%, down 7.7 percentage points from the same period last year. The desire to start refineries was weak, and crude oil imports slowed at the same time. In the first half of the year, China's crude oil imports were about 0.28 billion tons, a year-on-year decrease of 2.3%. At the same time, business volume declined due to the commissioning of surrounding ports. At the end of last year, 3 0.1 million-ton terminals at Dongying Port were put into operation one after another, causing some refineries to reduce transportation demand from transit ports such as Qingdao, Dalian, and Ningbo to Dongying. As a result, weak demand combined with the commissioning of surrounding terminals to attract supplies, putting pressure on the liquid bulk sector as a whole.

Logistics and port value-added services have benefited from the boom in consolidation, and gross profit for dry bulk goods has declined due to competition for business volume. In the first half of the year, net profit from logistics and port value-added services was 0.66 billion yuan, up 9.3% year on year, mainly benefiting from the high shipping boom. The terminal business exported 2.13 millionteU of containers, an increase of 8.6% over the previous year; and under shipping companies, the increase in overtime shipping and cabin agency business grew. Gross profit declined as the dry bulk sector competed for business volume at low rates. In the first half of the year, the total throughput of Qingdao Port was 0.35 billion tons, up 6.8% year on year. In the face of the increase in total throughput, the gross margin of the Dry Bulk Holdings and Joint Ventures segment decreased by 2.8 and 1.5 percentage points, respectively, from the same period last year, to 21.2% and 15.1%; the net profit of the dry bulk sector was 0.28 billion, down 8.3% year on year.

Investment advice: The container sector shows growth, and the stability of the liquid bulk sector needs to take advantage of port integration. Although the growth rate of container throughput slowed in the second quarter, the container segment's performance recorded a 23.1% growth rate in the first half of the year, showing its growth. The liquid bulk sector is under pressure due to weak macro demand and the commissioning of surrounding ports. However, in the context of the integration of Shandong ports, especially the future injection of high-quality oil products and pipeline assets from Rizhao and Yantai ports, the company will achieve integrated integration with high-quality oil terminals in Shandong Province to support the stable performance of the liquid bulk sector. We expect the company's net profit for 2024-2026 to be 5.13, 5.23, and 5.59 billion, corresponding PE of 10.4, 10.2, and 9.6 times. Assuming a 40% dividend ratio, the corresponding dividend rates for 24-26 will be 3.8%, 3.9%, and 4.2%, respectively, maintaining a “buy” rating.

Risk warning

1. Macroeconomic fluctuations;

2. Port integration falls short of expectations.