Description of the event

The company achieved operating income of 5.74 billion yuan in the first half of the year, a year-on-year decrease of 6.6%, and achieved net profit of 0.76 billion yuan to mother, a year-on-year decrease of 14.9%.

Incident comments

The water transport business is under pressure, and the land transport business has increased significantly. Looking at the revenue structure, the company achieved revenue of 4.55 billion yuan in the first half of the year, a year-on-year decrease of 9.6%, and achieved a land transportation business revenue of 1.19 billion yuan, an increase of 7.3% over the previous year. In the water transport business, overseas contributions were 0.57 billion (presumably mainly chartering revenue), up 5.8% year on year, and domestic trade business was 3.97 billion, down 11.5% year on year. Due to the rise in foreign trade charter rents after the Red Sea incident, the company's foreign trade rents lagged behind the industry due to contract period restrictions. It is presumed that the first half of the year did not clearly enjoy the spillover of the foreign trade boom, or more profit resilience provided by the domestic trade business.

Furthermore, the company's land transport business revenue growth accelerated after the increase in the proportion of direct customers (mainly full service) and the logistics park was put into operation one after another.

Domestic demand pressures led to a decline in Q2 revenue, but the company still outperformed the industry. At the industry level, domestic demand pressure led to a drop in freight prices. The average value of the PDCI composite index of industry freight rates in the first half of the year was 1,080 points, down 21.0% year on year; while Q2 is generally the recovery period after the Spring Festival, volume increases and price decreases as the main characteristic. Therefore, looking at 2Q24, (1) the industry freight rate recorded 1,034 points, down 14.4% year on year, down 8.2% month on month; (2) domestic trade container throughput of major domestic ports in April to April was 15.28 millionTeU, up 3.4% year on year. At the company level, the last big ship was launched in the first half of the year. The total capacity at the end of the first half of the year increased by about 5% compared to the end of last year. Considering the increase in the proportion of foreign trade charters, actual domestic trade capacity or reduction, the company's route structure was superior to the price advantage formed by the industry, the increase in domestic trade container traffic in Q2, and the increase in the company's land transportation revenue. In the end, Q2 revenue fell 4.9% year on year. The revenue decline was significantly less than the industry price drop.

During the stressful period, the blade is driven inward, and management demands profit. In the context of domestic trade consolidation pressure, the company strengthens cost control and actively allocates capacity and seeks collaboration in domestic and foreign trade markets to enhance profitability through cost savings and asset management. 2Q24's gross margin was 9.0%, up 1.4 pct year on year, maintaining leading efficiency under pressure. As a result, 2Q24's gross profit was 0.27 billion, an increase of 12.0% year over year. However, due to a decline in interest income and a marked decrease in exchange earnings compared to last year, financial expenses rose to 0.03 billion in 2Q24, compared to -0.095 billion in the same period last year. However, other expenses remained stable, and overall expenses were controlled relatively well during the period. Taken together, the increase in financial expenses is the main reason why the company's net profit after deduction fell 23.0% to 0.14 billion year on year.

The issuance of government grants and income statements from the sale of ships and boxes were the main part of non-recurring revenue in Q2. The company's government subsidies mainly come from tax rebates, but due to delays in government grants issued in Q1, this year up to now, more than in Q2, resulting in the company's other revenue of 0.16 billion in 2Q24, an increase of 0.05 billion over the previous year. In addition, the company continued to promote asset disposal updates during the downturn in the industry. In the first half of the year, it completed the disposal of 2 old ships and continued to sell used boxes to obtain revenue, so the Q2 asset disposal revenue was 0.1 billion. However, the sale of 2 new ships out of 18, which was previously announced, was not recorded in Q2.

Investment advice: Domestic trade logistics leaders with proper strategic adjustments, leading operating efficiency, and impressive dividend returns still deserve attention.

The competitive pattern of domestic trade transportation is good. The company is the most efficient company in the domestic trade transportation industry, and the industry has maintained operational resilience during periods of pressure. At the same time, the company will insist on long-term dividends to give back to shareholders. The company currently promises a dividend ratio of no less than 60%, and the dividend return is attractive. The company's profit for 2024-2026 is expected to be 1.72, 1.76, and 1.84 billion, respectively. The corresponding PE is 9, 8 times, and 8 times. The corresponding dividend rates are 7.1%, 7.2%, and 7.6% based on a 60% dividend rate, maintaining the purchase rating.

Risk warning

1. The macroeconomy experienced a sharp decline;

2. The competitive pattern of the industry has deteriorated.