Prices are rising due to lack of capacity, and shipping prices may continue to be high throughout the year: the export container freight index published by the Shanghai Shipping Exchange shows that as of June 18, the China Export Container Freight Index (CCFI) reported 2526.65 points, a record high; compared to an increase of 84.08 points a week ago, an increase of 3.4%; a cumulative increase of 203% compared to last year's low of 834 points. According to the monitoring of the international logistics online platform “Where to Ship”, freight rates for routes from China to Europe and the US increased 5-10 times compared to the same period last year. Currently, capacity is still tight, and prices continue to reach new highs.
We believe that shipping prices will continue to be high due to poor supply chains due to recent congestion in many ports around the world, the recovery in import and export trade, demand for container transportation is still strong. Coupled with the decline in capacity affected by the pandemic, shipping prices will continue to be high.
Increased shipping demand has led to an increase in international new ship orders: statistics from the Baltic Sea International Shipping Association (BIMCO) show that by the end of May, orders for new ships had reached 43.6 million DWT this year, an increase of 119.7% compared to the 19.8 million DWT of the same period in 2020. In comparison, the number of new ship orders for the full year of 2020 was only 49 million DWT. The order volume for the first 5 months of this year is already close to the full year of 2020. The increase in container ship orders has been particularly significant. Since the beginning of the year, international container ship orders have reached 2.2 million TEU, which is more than 12 times higher than 184,000 TEU in the first 5 months of 2020, and is still 60% higher than the peak period in 2005. We believe that the large-scale rebound in new ship orders is mainly driven by container ship orders. As freight prices remain high and shipowners have sufficient cash, container ship orders will continue to grow.
Driven by a sharp increase in orders, the performance of the domestic shipbuilding industry improved: according to data from the Shipbuilding Industry Association, in January-May, China completed 168.64 million DWT, an increase of 26.6% over the previous year.
Orders for new ships were received for 32.738 million DWT, an increase of 182.6% over the previous year. At the end of May, orders for handheld ships were 85.04 million DWT, an increase of 6.4% over the previous year, and an increase of 19.5% over the year-end of 2020.
From January to May, 75 key monitoring shipping companies completed a total industrial output value of 143.9 billion yuan, an increase of 18.9% over the previous year. Among them, shipbuilding output was 63.8 billion yuan, up 25.1% year on year; ship support output was 13.2 billion yuan, up 63% year on year; ship repair output was 6 billion yuan, up 13.2% year on year.
The company reported a sharp increase in its first-quarter performance, and asset impairment pressure was relatively reduced. The annual performance is expected to turn a loss into a profit: the company achieved operating income of 7.124 billion yuan in the first quarter of 2021, an increase of 57.14% over the previous year, and the net profit of the mother was 203 million yuan, an increase of 101.22% over the previous year. According to the 2020 annual report, the company's net operating cash flow was 9.268 billion yuan, the highest in history. It indicates that the company's operating capital is sufficient and the company's operating conditions have improved dramatically. In the first quarter of 2021, the company's contract debt was 31,843 billion yuan, an increase of 65.08% over the previous year. This indicates that the company is full of new orders and that future performance growth will continue. In 2020, due to a 6.92% increase in the exchange rate and a 19.86% increase in steel prices, the book value of the company's previous orders was reduced. The annual asset impairment loss was 1,820 million yuan, and the net profit returned to the mother for the year was -481 million yuan. In 2021, due to exchange rate fluctuations at a high level, steel prices declined somewhat after rising. As a result, the pressure to depreciate the company's assets decreased in 2021, which was good for the full year's performance. Coupled with a sharp increase in new ship orders, the company's performance in 2021 is expected to turn a loss into a profit.
Investment suggestions: In recent years, China's military budget has been growing steadily, and the company's military shipping performance has been growing steadily.
With the sharp year-on-year increase in civil ship orders in 2021, the company's civil shipping performance is expected to improve drastically, which will help the company's performance turn a loss into a profit. The company's net profit for 2021-2023 is estimated to be 930,000, 10.9 billion yuan, and 1.35 billion yuan, and the corresponding earnings per share are 0.04, 0.05, and 0.06 yuan respectively. This was covered for the first time, giving an investment rating of -A for the increase in holdings.
Risk warning: There is a risk that military goods orders fall short of expectations and that the growth rate of new ship orders will decline.