Northeast Securities

This article comes from the official account of Wechat, "Laoyi Research". The authors: qu Yonghong and Yang Zhenhua.

Summary of the report

Collection and transportation look at the moment: the supply of "ships + boxes" on the backbone route is tight, superimposed on the development of the "housing economy" in Europe and the United States, and the freight rate continues to run at a high level.Under the health events, the high freight rates of trans-Pacific routes are directly due to the imbalance between supply and demand in the short term. On the one hand, (1) the self-discipline of the industry is enhanced, and shipping companies take the initiative to stop shipping control shifts; (2) there are health incidents in liner companies or ports; and (3) containers are also faced with short-term scheduling and supply difficulties. On the other hand, the European and American economy restarts the superimposed "housing economy" global development, showing the characteristics of "weak production and strong demand". Short-term backbone routes are in short supply.

Collection and transportation look at the cycle: the growth rate of supply tightens to a deterministic trend; the landing of vaccines may bring stage resonance in global trade; supply and demand growth is expected to be 3% and 6.8% in 2021.The nature and status of the global supply chain in the container transportation industry determine its inevitable periodicity. On the supply side, the ratio of existing orders to existing capacity is at its lowest level since 1996, and newly signed orders this year are only 1.63 million TEU, so follow-up orders tend to be cautious; industry shipbreaking is also expected to increase; and supply growth is expected to be 1.7% and 3% in 2020 / 2021. On the demand side, the characteristics of "weak production and strong demand" in Europe and the United States may be difficult to improve and there is still room for improvement, while the landing of the vaccine will reduce the constraints of economic activity and bring resonance in the global trade stage; demand growth is expected to be-7.2% and 6.8% in 2020 / 2021 (returning to 2019 levels).

The competition strategy of shipping companies has shifted from share to service and profit, and the improvement of the pattern has pushed the industry into an era of "positive economic profits".After three rounds of industry reshuffle, the concentration of the industry is further enhanced (it is still possible for the industry to continue to reshuffle in the future), and the competitive strategy of shipping companies has gradually shifted from share to service and profit, which will continue to promote the improvement of the industry structure. Container transportation will enter the era of "positive economic profits".

COSCO Shipping Holdings (01919) is the third largest liner company in the world, with continuous improvement in operating efficiency and great profit flexibility.In terms of existing capacityCOSCO Shipping HoldingsIs the world's third largest liner company, in the east-west backbone routes as well as Australia and other routes have strong competitiveness. After the acquisition of OOCL, the synergy effect is further reflected, the route network is further optimized, the efficiency indicators such as revenue / cost per box and unit fuel consumption are improved, and the operating performance is flexible, which will fully benefit the current round of collection and transportation cycle.

Investment advice:It is estimated that the EPS of the company from 2020 to 2022 is 0.37, 0.44 and 0.45 yuan respectively, corresponding to a PB of 1.7, 1.5 and 1.3X, which is covered for the first time and given an "overweight" rating.

Risk Tips:Sudden growth in transport capacity, the Great Recession of the global economy and a sharp rise in oil prices

Catalogue

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1. Introduction: starting from the freight rates that continue to exceed expectations

Under the gloom of health events, US freight rates continue to break through, while European freight rates are also rising.Since the outbreak of the health incident at the beginning of the year, the demand for container transport has fallen off a cliff, and some liner companies have fallen into a survival crisis. After that, liner companies took the initiative to stop flight control; as China quickly got out of the haze of health events, European and American countries entered the stage of resumption of work and production, the relationship between supply and demand of trunk routes changed, and container rates rebounded continuously. On the main route, the freight rate of the US-Western route has reached 3867 US dollars / FEU, the US eastern route freight rate has reached 4634 US dollars / FEU, and the European route freight rate has reached 1082 US dollars / TEU. The freight rate has gone out of the bottom and hit a new high, which has attracted the attention of the capital market and relevant departments.

The direct reason for the continuous breakthrough of freight rates lies in the imbalance between short-term supply and demand, and the supply side is the shortage of "ship + box" supply.No matter what kind of point of view, the nature and status of the global supply chain of the container transport industry determine its inevitable periodicity, and the short-term freight rate is directly affected by the supply and demand of the industry. From the supply side, (1) in terms of capacity deployment, liner companies take the initiative to stop flight control classes in order to protect prices under the "survival crisis". According to public data, the proportion of suspension of flight control classes on the American line in the industry once reached more than 15%. (2) apart from ships, there are also problems in the supply of containers in June and July, on the one hand, because the containers are still overseas at the time of suspension, and it takes time for dispatching; on the other hand, the efficiency of the container factory is not good in the past two years, and the supply can not keep up; however, due to the container construction cycle of about six to eight weeks, the relative capacity deployment, the problem of containers is relatively not very prominent. (3) Sanitary incidents on normal flights and port problems will also lead to a short-term shortage of transport capacity.

On the demand side, the characteristics of "weak production and strong demand" in Europe and the United States lead to higher-than-expected export demand.Under the health events, China's position in the global supply chain has been further highlighted. European and American countries have gradually started to resume work and production, and the economy has embarked on the road of recovery, but showing the characteristics of "weak production and strong demand". In addition, under the health incident, the import demand of protective materials and household goods in the United States is growing rapidly. In the first ten days of September, the container throughput of the eight hub ports increased by 7.4% over the same period last year, 4.7 percentage points faster than the previous period, and the foreign trade throughput increased by 6.3% over the same period last year. The superposition of the two phases has led to a sustained higher-than-expected demand for exports, and American freight rates have continued to hit record highs.

The continuity of the high freight rate reminds investors to pay attention to the story behind the freight rate.Short-term continuous innovation of freight rate not only reflects the change of short-term supply and demand, but also reflects the improvement of the industry pattern, which will push the industry into a "positive economic profit era". We will analyze this point below.

two。 Collection and transportation industry: from the struggle for share to the pursuit of profits, the industry may enter the era of "positive economic profits"

As an important part of the global supply chain, the trade volume of the container transport industry accounts for about 16% of the global seaborne trade volume. the goods are mainly household appliances and textile products (epidemic prevention materials have become the most important category during the health incident this year). As a global industry, the cyclical nature of the global economy determines the inevitable and indestructible cyclical attributes of the collection and transportation industry, so the supply and demand structure is still the primary key point in the analysis of the collection and transportation industry. However, with the completion of the three waves of integration in the collection and transportation industry, the major shipping operators have changed their pursuit of market share to service quality and then to profits. in the following long period of time, the growth of global trade may maintain a medium-to-low speed or even a low-speed growth. however, the self-discipline of shipping operators and the change of core aspirations may reduce the cyclical fluctuations of the industry. In this part, we will analyze the most basic supply and demand pattern of the industry. We believe that this is also a link that can not be ignored in the analysis of the collection and transportation industry.

2.1. Looking at the Collection and Transportation Industry from the traditional cycle Perspective

2.1.1. Supply side: the order on hand is historically low, and the newly signed order is almost zero.

The industry's on-hand orders account for 8.4% of existing capacity, an all-time low.The situation of orders-on-hand in the industry reveals the situation of the undelivered orders in the industry stock and the newly signed orders in the current period at a certain time, and also indicates the situation to be delivered in the future, so it is an important guide for capacity supply. Judging from the current situation of industry-on-hand orders, in August 2020, industry-on-hand orders of 2.065 million TEU, a month-on-month decrease of 4%, accounting for 8.4% of the existing capacity ratio. The ratio of hand-to-hand orders to existing capacity is at the lowest level in history since 1996, indicating that under the condition of no sudden new orders and normal delivery rhythm, the delivery pressure of industry capacity will be less in the future. From the point of view of the structure of in-hand orders, the proportion of orders above 15000TEU is 48.38%, and that of 12000TEU is 17.82%, that of 8000TEU is 14.38%, and that of other ship types is 19.42%.

Newly signed orders have decreased significantly, and shipowners are expected to be more cautious in signing new orders in the future.The new shipbuilding orders signed by shipowners are affected by shipowners' expectation of the future market (low shipbuilding or high expansion), market strategy (share war or profit pursuit), capital expenditure and industry pattern. Since the beginning of 2020, the number of new orders signed by the industry has decreased significantly. By August 2020, the total number of new orders signed by the industry totaled 1.628 million TEU, a decrease of 41.61% compared with the same period in 2019. Such a low number of new orders appeared in history in 2009 after the financial crisis, but since then there has been a significant increase in new shipbuilding orders, and there has been an obvious trend of large shipbuilding. The probability of this round of capacity expansion is no longer as rapid as before, mainly due to the following reasons: (1) regardless of the low base caused by health events, container seaborne trade volume will maintain steady medium-and low-speed growth for a long time in the future; (2) the large shipbuilding of major shipowners has been basically completed, and some shipping operators have signed large ships again mainly based on improving the fleet structure or route structure. (3) after several rounds of reshuffle, the concentration of the industry has been further improved, the pattern has been improved, and the self-discipline has been enhanced, and the industry has gradually shifted from the struggle for share to the pursuit of profits. the blind expansion of production capacity does not meet the demand of profit pursuit and service quality improvement; (4) the pressure of capital expenditure still exists.

Combining on-hand orders and newly signed orders, the growth rate of new supply in the industry is likely to slow down.At present, the ratio of existing orders to existing capacity in the industry is at the lowest level in history since 1996. at the same time, affected by the superposition of many factors, the number of newly signed orders in the industry has decreased significantly, and the delivery volume in 2021 will be affected by orders to be delivered in 2018 and 2019. The delivery volume is basically the same as in 2019, and the delivery volume in 2022 will probably decrease compared with the same period last year.

Global container dismantling is expected to increase in 2020 and 2021.Ship delivery affects the new capacity of the industry, but in addition to the new capacity, the dismantling of old ships and other ships will reduce the stock capacity. From the perspective of dismantling, the volume of ship dismantling began to rise in 2019, in which Q1-Q4 dismantled 69.8,47.4,39.8 and 25.8 KTEU respectively. In 2020, the number of ship dismantling is expected to further increase, of which Q1 dismantling 35.4 KTEU and Q2 dismantling 62.9 KTEU. Clarkson expects that the annual dismantling volume will reach 359.3 KTEU in 2020 and 388.8 KTEU in 2021, and the industry dismantling volume will almost reach the level before 2018.

Global container capacity is expected to grow by 1.3% and 3% respectively from 2020 to 2021.According to Clarkson's forecast, global container capacity will be 22.96 million TEU in 2020, an increase of 1.3 per cent over the same period last year; capacity growth will be 3 per cent in 2021 and 3 per cent in 2022. According to Alphaliner, global container capacity will grow by 2.7 per cent in 2020 and 2.9 per cent in 2021.

The container itself may also be restricted for a period of time.On the supply side, in addition to the factor of container ship, container is also an important supply factor. In the past few years, the overall efficiency of the collection and transportation industry has been poor, as have container manufacturers; in 2020, containers themselves have also become a factor restricting supply. According to Xindh Maritime Network, China's container bookings have been scheduled after February 2021. Considering that the production cycle of containers is about six to eight weeks, the overall impact is relatively limited.

2.1.2. Demand side: Europe and the United States "weak production, strong demand", vaccine landing may be expected to bring phase resonance

As an important part of the global supply chain, the transportation industry is highly exposed to the development of the global economy and trade. In this part, our demand for container transportation mainly discusses the following issues.

From an overall perspective, the improvement of the export industry chain is still worth looking forward to.

With the continuous improvement of the global economy, the export industry chain has improved.At present, there are no inflection points in overseas health events, and there are even repeated signs of health events in some countries, but with the opening of the global resumption of work and production, the global economy continues to repair.JPMorgan Chase & CoGlobal aggregate PMI was 52.4 in August, up from 51.0 in the previous month and the highest since the recovery at the end of April. As the global resumption of work continues, economic activity and the interaction of the industrial chain continue to improve. One of the important reasons for the continuous improvement of exports is the characteristics of "weak production and strong demand" in Europe and the United States. even considering the second outbreak of health incidents, China's exports may be less affected than other countries.

Vaccines (inactivated) are expected to hit the ground from the end of this year to the first quarter of next year, global economic constraints are gradually loosened, and global trade may usher in phased resonance.The impact of health incidents on global economic activities is enormous. The actual actions of overseas countries in isolation and wearing masks basically determine that vaccine is the final solution to this health incident. According to the Northeast Medicine Group, 30 vaccine candidates have entered the clinical trial stage, of which 6 have been in phase 3. The inactivated vaccine is expected to hit the ground by the end of this year.CANSINOBIOThe adenovirus vector and Zhifei's recombinant subunit vaccine will be on the ground as soon as the first quarter of 2021. At the initial stage of the landing of the vaccine, the main vaccination targets should be mainly focused on medical care, border defense, transportation and student personnel. Although affected by factors such as production capacity, the landing of the vaccine will loosen the important binding conditions for global economic development. Global trade is expected to produce phased resonance.

Structural perspective: the demand of the US line is higher than expected, and the categories are mainly epidemic prevention materials and household products.

At present, the regional differences in the improvement of collection and transportation demand are obvious, and the improvement of the American line is obvious.At present, there are obvious regional differences in the recovery of collection and transportation demand, which is closely related to the economic recovery of each region. The latest data show that the trend in Asia is more positive, the United States and Europe are gradually improving, while trade between ISC and Latin America is still under great pressure. From the perspective of the main routes, the hottest route at present is the US route, which is mainly due to the stronger consumption power of the United States, and the strong consumption power has something to do with the "cash effect" of the US government during the health incident (subsidies to US $2000 to US $3000 on the C side, and subsidies on the B side are also in place quickly). Judging from the PMI index and the consumer confidence index, the PMI of the United States and the euro zone has exceeded the level of the same period last year. In terms of routes, in the first half of the year, the freight volume of the far East European route fell by 14%, and that of the trans-Pacific route by 11% in the first half of the year. Among the non-backbone routes, the freight volume of the Middle East route fell by 30% (down 50% in the second quarter).

Under the health incident, China's status as the "factory of the world" has been highlighted, and the export of epidemic prevention materials and household goods has increased sharply.In this health incident, China's health incident is the most serious, but China has taken strict and effective prevention and control measures, the health incident has been brought under control quickly, and the resumption of work and production has been carried out smoothly; in contrast, in other countries, due to various reasons, the inflection point of health incident has not arrived, and the promotion of resumption of work and production is obviously later than that of China; China's status as the "factory of the world" is evident. China's rapid resumption of work and production has also contributed to a faster recovery of China's exports. Therefore, from the point of view of goods, a relatively large number of epidemic prevention materials (disinfectants, masks, hand sanitizers, medical equipment), followed by normal consumer goods, mainly because the inventory has been consumed.

Container transport demand will return to the same level in 2019 in 2021

Global container transport demand in 2021 is expected to be the same as in 2019.As mentioned earlier, the global economy is on the path of improvement, and the landing of vaccines will further relax the constraints on economic activities, and global trade activities are expected to resonate. In addition, there is still room for improvement in the volume of trade between Europe and the United States. According to Clarkson's forecast, global container transport demand will be 182.3 million TEU in 2020, 7.2 percent less than in 2019, and 194.7 million TEU in 2021, an increase of 6.8 percent over the same period in 2020, basically returning to 2019 levels.

2.2. From the perspective of value, the industry will enter the era of "positive economic profit".

2.2.1. Improve the industry pattern or drive the industry to enter the era of "positive economic profits"

Further increase in concentration and emphasis on service value will promote the improvement of the industry pattern, improve the pattern or drive economic profits to positive profits.The improvement of industry concentration alone does not explain the improvement of the industry pattern or the formation of local equilibrium. No matter from the product end (almost undifferentiated products) or the degree of concentration, the collection and transportation industry is almost still in the stage of full competition, and the competition mode of the industry determines that the economic profit of the industry is basically 0. reflected in the accounting profit is basically loss-based, many collection and transportation companies' continuous loss performance also verified this point. With the completion of the third wave of industry integration and the further improvement of industry concentration, CR5 has reached 67%, and the industry's self-discipline has improved; major shipping operators also pay more attention to service quality, and there may be differences in comprehensive shipping services, big or small, in the future. These two factors are not only the performance of the improvement of the industry pattern, but also the important reasons to promote the improvement of the industry pattern. From the mode of perfect competition to the stage of pattern improvement, the collection and transportation industry will enter the era of "positive economic profits".

The price elasticity is greater than the volume elasticity, and the industry moves from the share struggle to the profit pursuit.In the past, for a long time, the competition in the collection and transportation industry was in the market share. In 2019, in the case of weak demand, liner companies basically abandoned the strategy of grabbing share through price war, while the survival crisis under the health incident further prompted enterprises to shift their goals to survival and profit. Looking back, under the background of the catalysis of health events and the high concentration of the industry, the goal of the industry will turn to profit rather than being limited to market share. At present, the price elasticity of the container transportation industry is greater than that of cargo volume. According to the latest data released by Maersk, every change in container freight rate of 100USD / FFE will have an impact of US $600,000,000 on EBITDA in the second half of the year, and every change in container volume of 100000 FFE will have an impact on EBITDA of US $100m in the second half of the year.

2.2.2. The industry is at an important point of digital change, or it may help improve the valuation of the industry.

Health events have become a catalyst for the digitization of the industry, which is expected to promote the valuation of the industry.Another important change or industry ecological upgrade of the collection and transportation industry is digitization. Digitization is not the latest concept. In fact, relevant departments and companies are working out the relevant procedural framework long before the health incident. However, health events have become an important catalyst for the process of industry digitization, and digitization has gradually become the consensus of the industry. For the industry, digitization can optimize internal and external processes, for external processes, digitization can better help customers place orders, evaluate performance, but also help to reduce environmental pollution and improve operational efficiency and safety. However, the digitization process can not be realized quickly. In the process of industry digitization, it is necessary to solve the problem of trust and the establishment of standards in the supply chain.

2.3. Short-term freight rates do not rule out the possibility of a correction, but the improvement of profitability is also a high probability event.

Short-term does not rule out the possibility of freight rate correction, but the industry profitability improvement in 2021 is also a high probability.In the short term, (1) Maersk and other major liner companies resume the supply of backbone shipping capacity; (2) the industry is about to enter the fourth quarter off-season. It is difficult to maintain the current high freight rates. But the biggest difference between this demand crisis and the 2008 crisis is that the 2008 crisis was the rupture of financial markets, while this time there was a lot of demand for restocking and consumption, more time at home and strong demand for Christmas. In addition, as mentioned earlier, the situation of "weak production and strong demand" may lead to no longer pessimistic demand in the fourth quarter. Looking forward to 2021, the demand side: (1) there is room for improvement in Europe and the United States; (2) the landing of vaccines may bring phased resonance in global trade; the tightening of the supply side is certain. Therefore, we make the following basic judgments on the collection and transportation industry in 2021: (1) the price of contract goods is expected to increase; (2) under the stage resonance, the spot freight rate still has a prosperous range. As a result, the profitability of the industry is likely to be further improved.

3. COSCO Shipping Holdings: after two times of integration, he has become the third largest carrier in the world.

3.1. Company profile and ownership structure

COSCO Shipping Holdings, formerly known as China Cosco Holdings Co., Ltd., was established in March 2005 and in July of the same year.HKExListed (code: 1919.HK), officially landed on the A-share market in 2007 (code: 601919.SH). 2016 Cosco vs.Shipping ContainerReorganized and merged, and changed its name to "COSCO Shipping Holdings Co., Ltd."; COSCO Shipping Holdings acquired OOCL in 2018, and the operation scale was further expanded.

The controlling shareholder of the company is China Ocean Shipping Co., Ltd., and the actual controller is SASAC of the State Council.China COSCO Shipping Co., Ltd. holds 37.89% of COSCO Shipping Holdings and is the company's controlling shareholder. Cosco Shipping Group Co., Ltd. is the indirect controlling shareholder of the company. in addition, it also directly holds 8.33% of the company, totaling 46.22% of the company. The actual controller of the company is SASAC of the State Council.

3.2. The scale of transport capacity is the third in the world, and the scale effect appears.

After two times of asset restructuring, it has created the world's third-largest container shipping company and the world's number one terminal company.The company's capacity has increased rapidly with the delivery of new ships, mergers and acquisitions: in 2015, the company operated a fleet of 178container ships, totaling 857700 TEU, ranking sixth in the world; in 2016, it was integrated with China Shipping and leased container ships owned by COSCO Haifa, with a total capacity of 1.6488 million TEU, rising to the fourth largest in the world; in 2018, the company acquiredOrient OverseasAfter that, the scale of transport capacity further increased and increased to the third place in the world; the latest data show that the company has a capacity of 2.92 million TEU, continuing to rank third in the world. In terms of terminal throughput, the company's wharf throughput share is 13.5% in terms of total throughput, ranking first in the world; in terms of equity throughput, the company's wharf throughput share is 5.9%, ranking third in the world.

3.3. The main route contributes to the main income and profit, and the gross profit margin shows an upward trend.

Restructuring promotes business integration, and the share of revenue and profits of container shipping business continues to increase.In 2016, Cosco sold its 100% stake in Cosco to COSCO, bought shares in 33 container shipping companies from China Shipping Container, and Cosco.PacificSell its 100% stake in Florent to China Shipping Hong Kong and buy its 51% and 49% stake in China Shipping Port from China Shipping Hong Kong Holdings and China Shipping Container respectively. After the completion of the transaction, the company's strategic positioning changed to "focus on the development of container shipping service supply chain". The main business has also shifted from the previous container shipping, dry bulk shipping, terminal and container leasing business to more focused on container transport and terminal investment business. After the integration of Orient Overseas in 2018, the container shipping business has further improved, especially the proportion of international container business.

Container shipping business contributes 96% of revenue, of which trans-Pacific routes and Asia-Europe routes contribute more than 50%.In terms of revenue structure, with the completion of business integration, the proportion of container shipping business has increased from 77.8% in 2015 to 95% at present; the proportion of terminal business income has basically remained stable. In the first half of 2020, the revenue of the company's container shipping business was 71.588 billion yuan, an increase of 3.89% over the same period last year, while that of the terminal business was 3.225 billion yuan, down 27.74% from the same period last year. From the perspective of the separation of shipping business, the cargo volume of international routes accounts for 79.05% of the total cargo volume, and is in the process of increasing, of which trans-Pacific routes account for 18.13%, Asia-Europe routes (including the Mediterranean) account for 19.13%, Asian regional (including Australia) routes account for 32.08%, other international routes (including Atlantic Ocean) account for 9.67%, and Chinese mainland routes account for 20.95%. In terms of revenue, revenue from international routes accounted for 92.31% of the revenue of container shipping business, of which trans-Pacific routes accounted for 28.85%, Asia-Europe routes (including the Mediterranean) accounted for 22.65%, Asian regional (including Australia) routes accounted for 27.23%, other international routes (including Atlantic) accounted for 13.58%, and Chinese mainland routes accounted for 7.69%. Trans-Pacific routes and Asia-Europe routes contributed 51.5% of revenue with a cargo volume of 37.3%.

Some of the costs are relatively rigid, and freight and fuel costs become important factors affecting profit performance.Liner company income is mainly affected by freight volume and freight, and because ship depreciation, maintenance and other costs are relatively rigid, so from the cost point of view, fuel costs and the company's cost control become important factors affecting profit performance. Judging from the company's profit performance over the past few years, the company's gross profit margin has risen.

4. The synergistic effect with OOCL is gradually emerging, and the business efficiency continues to improve.

4.1. Synergy is gradually emerging in the acquisition of OOCL

After the acquisition of OOCL, the company implemented "dual-brand" operation, gave full play to the advantages of scale and synergy, and achieved good results in route network planning, container management, supplier procurement and information system construction.

Route network and capacity layout planning:(1) intra-European routes are provided byCosco shippingThe overall management and operation of collection and transportation; the Atlantic route is managed and operated by OOCL containers; in addition, OOCL enters the African and South American markets, and Cosco's branch lines and shipping agency services are also open to OOCL. (2) through strengthening the overall arrangement of transport capacity, the optimal transport capacity of each route can be realized, and the fleet resources can be fully utilized through the mutual lease of some ships.

In the area of container management:Share the container inventory information of both sides through the information system, arrange the transportation as a whole, and improve the efficiency of container use.

Information system construction:OOCL's system is one of the highest quality systems in the industry. Since August 2019, Cosco has gradually cut into OOCL's IRIS4 system by shipping in batches and routes. Relying on the leading information system of OOCL, Cosco's booking platform function, transit operation and shift management have been greatly improved, and the service reliability has been improved. In terms of optimizing space management and booking operations, the global confirmation rate of 2-hour booking has increased from 95% in 2018 to 98%. At all domestic ports and 23 key overseas companies, 98% of the arrival notices have been sent to customers at least one day before the arrival of the goods.

4.2. Business efficiency is improving, and there is still room for improvement in the future.

From the explicit visualization results, the improvement of revenue management ability, low cost and the improvement of service quality have been verified.

The per-container revenue of international routes has increased, and the overall OOCL per-container income is higher than that of Cosco seaborne.In the first half of 2020, the company's revenue per container on international routes was US $937.36, an increase of 55.2% over the same period last year, of which Cosco seaborne container revenue was US $943.8. In 2019, the company's revenue per container on international routes was 889.71 US dollars, an increase of 9.59 percent over the same period last year, including Cosco seaborne container revenue of 888.24 US dollars and Orient Overseas's per container income of 901.08 US dollars. The per-box income of OOCL is higher than that of Cosco. In terms of routes, Trans-Pacific routes have the highest per-container revenue of US $1277.16 / TEU; Asia-Europe routes (including the Mediterranean) $948.37 / TEU; Asia (including Australia) $681.46 / TEU; other international routes (including Atlantic) per container revenue of US $1127.25 / TEU.

The cost per case fluctuates, but the fuel efficiency has improved.In terms of cost per container, due to large fluctuations in fuel prices, the cost per box also fluctuates, but indicators such as fuel deduction cost and unit fuel efficiency are constantly changing. The company effectively reduces fuel consumption by applying a number of energy-saving and emission reduction technologies, optimizing fleet structure and route design, and improving ship operation efficiency in port. In 2019, with the increase in both capacity and freight volume, the company's actual fuel consumption was 5.1228 million tons, down nearly 1% from the same period last year. In terms of unit fuel consumption, the unit fuel consumption has continued to decrease since 2015, from 5.1 kg / kg nautical miles in 2015 to 4.56 kg / kt nautical miles in 2019. From the point of view of the cost per container, there has been a certain fluctuation. In the first half of 2020, the cost per container was 738 US dollars per TEU, an increase of 6.9% over the same period last year.

The company mainly uses low-sulfur oil to deal with the IMO2020 sulfur limit order.In order to deal with the new regulations of IMO2020 sulfur limit, the major shipping companies in the world mainly take three measures: directly using low sulfur oil, installing desulfurization towers and using LNG power. As of August 2020, about 87.8% of the world's container ships use low-sulfur oil for a total of 75.7% of the capacity; 24.2% of the capacity has been installed with desulfurization towers; and 0.1% of the capacity is powered by LNG. Through research and comparison, the company also uses low-sulfur oil as the main and desulfurization tower as the supplementary response measures. By the end of 2019, a total of 7 ships in the company's dual-brand fleet have completed the retrofit of desulfurization towers and put them into operation.

5. Profit Forecast and valuation Analysis

5.1. Main assumptions and profit forecasts

We expect the company to achieve operating income of 154.176 billion yuan, 161.761 billion yuan and 165.631 billion yuan from 2020 to 2022, with gross profit margins of 13.95%, 14.15% and 14.20%, respectively. Realize the scale net profit of 4.476 billion yuan, 5.415 billion yuan and 5.524 billion yuan.

5.2. Valuation analysis

We selected the PB since the reorganization of the company in 2016 for analysis, and the current valuation level is lower than the average PB of the past three years and the average of five years. Considering the trend of increasing profitability of the transportation industry, we give a target price of 7 yuan based on 2.1x PB in 2020.

6. Risk hint

The sudden growth of industry capacity:Although the pattern of the collection and transportation industry is improving, the relationship between supply and demand is still the core fundamental factor of the industry boom. At present, the growth rate of transport capacity slows down, but once new shipbuilding orders and other substantial growth, the logic of the transport side will be destroyed.

Global Great Recession:Although there is a shadow in the global economy, major countries are in the process of recovery. if health incidents break out twice around the world, especially in China, the global supply chain will undoubtedly be hit hard again. Container transport demand will shrink sharply again.

Oil prices have risen sharply:Fuel costs are an important part of the company's costs, and a sharp rise in fuel prices will boost costs and erode profits.

(editor: Zhang Jinliang)