Key investment points:

A leading transportation company for refined oil products in the Far East. CMB is a shipping company with oil transportation as its core business. It has a business pattern of “oil and gas collaboration, domestic and foreign trade, direct access to rivers and seas, and differentiated development”. The company implements a “specialization, differentiation and leadership” development strategy. The scale of the foreign trade refined oil transportation business ranks first in the Far East, the domestic trade crude oil transportation business ranks second in the country, the scale of chemical transportation capacity ranks the highest in the country, and the ethylene transportation business is exclusively operated domestically.

Tight supply supports the continuation of the boom in refined oil products. Demand side: Geographical conflicts have led to route restructuring, stimulating demand for refined oil transportation. There is currently no progress in resolving the Red Sea bypass. It is expected to continue for a long time, affecting about 8.6% of the shipping volume of refined oil products. Combined with other political factors such as the Russian-Ukrainian conflict and shadow fleet sanctions, it is expected to support traffic demand for a long time. In addition, global refinery production capacity is expected to continue to move eastward, and the Asia-Pacific region may become a major incremental region, which will benefit ocean shipping in the long term under objective circumstances. Supply side: The aging of the fleet limits supply growth. Taking MR ships as an example, we expect old ships over 20 years old and ships aged 15-19 to account for 14% and 30% respectively, which will be much higher than the proportion of new ships in progress (13%). It will be difficult for new ships to fill the gap in old ships, and the fleet capacity is growing slowly. Combined with environmental regulations, environmental regulations have been clarified. The current environmental performance of the refined oil tanker fleet is poor. It is expected that they will be forced to slow down operations, further dragging down the fleet's capacity, which will benefit the transportation of refined oil products in the long run.

Profit forecast and rating: China Merchants CNPC is the leading transportation of refined oil products in Asia and has the largest MR refined oil product fleet in the Far East.

In the context of the continuing boom in refined oil transportation, we expect the company's net profit to be 2.102/2.193/2.245 billion yuan respectively in 2024-2026, with year-on-year growth rates of 35.00%/4.31%/2.40%, respectively. The PE corresponding to the current stock price is 7.13/6.83/6.67 times, respectively, covered for the first time. Considering the continued boom in refined oil tankers, we will give a “gain” rating.

Risk warning. Trade demand for refined oil products fell short of expectations; the elimination of old ships fell short of expectations; orders for refined oil tankers increased beyond expectations; risk of exchange rate fluctuations; and geopolitical risks.