Key points of investment

The world's leading liquid cargo transportation service provider for small to medium vessels

It has been more than 30 years since the company was founded. After going through ups and downs such as asset restructuring, loss and delisting, turning a loss into a profit, and going public again, it has now been reborn and its operation is stable. The company has the largest fleet of MR refined oil products in the Far East. The foreign trade refined oil business is the largest in the Far East, and is committed to becoming “the world's leading liquid cargo transportation service provider for small and medium-sized ships”. China Changhang Group and China Merchants Group are the controlling shareholders and actual controllers of the company, respectively. In the first half of 2024, the company achieved operating income of 3.53 billion yuan, +11.8% year-on-year; realized net profit of 1.22 billion yuan, or +44.8% year-on-year.

The tight balance between supply and demand for the transportation of refined oil products drives increased profits

Refined tankers mainly transport clean petroleum products and are located in the middle and lower reaches of the petroleum and petrochemical industry chain. Refined oil tanker types are generally smaller than crude oil carriers. There are many routes, mainly regional short-haul routes. The tight balance between supply and demand in the industry is expected to drive a gradual increase in the revenue of finished tankers. On the demand side, the tense situation in the Red Sea has led to tankers orbiting the Cape of Good Hope, lengthening the transportation distance, and increasing demand for tons and nautical miles; in the long run, demand for trans-regional transportation of refined oil products will continue to increase as global refining capacity moves eastward. On the supply side, the share of in-hand orders for finished tankers is at a historically low level. At the same time, as the age of the fleet continues to grow and stricter environmental protection policies, the pressure to dismantle old ships is increasing, and the future supply growth rate of the industry is limited.

Domestic oil and chemical gas earnings are steady, and foreign trade refined oil products are flexible

The company's domestic trade crude oil shipping business is the second largest in the country. The overall freight rate in the domestic trade crude oil market is stable, which is the “ballast stone” of the company's overall efficiency. The company's chemical transportation scale is the largest in China. Ethylene water transportation is exclusively operated domestically, and the profitability of related businesses remains stable. In 2018-2023, the average gross margin of the company's chemical and ethylene transportation business was 21.2% and 37.5% respectively. The company has the largest MR fleet in the Far East, and is expected to enjoy the flexibility in freight rates brought about by the rising boom in the refined oil transportation industry, becoming an important pillar of the company's efficiency growth. We estimate the profit elasticity of the company's foreign trade MR product tanker fleet. Each increase in TCE of 0.01 million US dollars/day corresponds to an increase of 0.58 billion yuan in annualized net profit.

Benefiting from the upward trend in the transportation of refined oil products, it was given a “buy” rating

We expect the company's revenue for 2024-2026 to be 7.06, 7.44, 7.66 billion yuan, +13.9%, +5.4%, and +3.0% year-on-year, with a 3-year CAGR of 7.3%; net profit to mother of 2.09, 2.12, 2.18 billion yuan, +34.0%, +1.4%, +3.1%, 3-year CAGR of 11.9%; EPS of 0.43, 0.44, 0.45 per share. Based on the tight balance between supply and demand in the global refined oil transportation market, the freight center is expected to remain high. As the largest refined oil tanker fleet in the Far East, the company's profit level is expected to gradually increase. For the first time, coverage was given, and a “buy” rating was given.

Risk warning: The global economy is slow; new capacity is being invested too fast; oil freight rates fluctuate greatly.