Event: China ship chartering released its profit forecast for the first half of 2021, and its net profit increased by about 30%. Mainly because (1) the number of ships increased from 84 in the first half of 2020 to 114 in the first half of 2021. (2) the average cost of corporate interest-bearing liabilities decreased from 3.3% in the first half of 2020 to 2.2% in the first half of 2021. (3) the operating income and profits of the company's self-operated dry bulk fleet increased significantly compared with the same period last year.
The shipping scene is gradually transmitted to the leasing company. After the epidemic, with the global resumption of work and production, the prosperity of the shipping industry has greatly improved. as the beneficiary target in the industrial chain, ship leasing companies need to wait for the expiration of the last lease and sign a new lease contract before they can enjoy the dividend of the shipping boom, so there is a certain lag. According to Karakson data, in July 2021, the new shipbuilding price index rose 11.8% year-on-year, and the second-hand ship price index rose 78.3% year-on-year. In the future, the newly signed order dividend brought by the ship boom will be gradually realized.
The increment mainly comes from after-sale leasing and the launching of new ships, which will continue to release profits in the future. In 2021, the company announced the after-sale and leaseback business of 15 ships, and the rent is calculated from the delivery date, so in the first half of the year, some ships only released a few months or have not yet released profits, and the rental income will continue to grow in the future. According to feedback from the shipyard, most of the berths are already full, and orders are scheduled for two years later, and it is estimated that it will take at least four years for newly signed orders to be put into production after two years of ship construction. China ship chartering disclosed orders for 46 ships under construction in the 2020 annual report, which is expected to be released within two years, bringing huge profits.
Financing costs are locked in, and the rise in bank borrowing rates will highlight the company's cost competitiveness. The company has successively issued US $400 million 2.5 per cent secured bonds maturing in 2025, US $3.0 per cent guaranteed bonds maturing in 2030, and US $500 million 2.1 per cent guaranteed bonds maturing in 2026. These three bonds account for about 50% of all liabilities in 2020 and will effectively lock in financing costs.
The average cost of corporate interest-bearing liabilities fell to 2.2% in the first half of 2021. With the rise of bank borrowing rates in the future, the advantage of corporate financing costs will be highlighted and become more competitive in the industry.
The leader of ship chartering with high dividend yield is very attractive. The dividend payment rate of China ship charter is about 50%, and the profit growth is stable. The current stock price corresponds to the dividend yield of 8.0% in 2021 and is expected to be 10.5%, 13.4% and 17.3% in 2020-2023, respectively. The shareholder returns are considerable and attractive.
Maintain the core recommendation logic: shipping scene demeanor improved, the main leasing industry ushered in the golden era. Ship leasing mainly includes financial leasing and operating leasing. Financial leasing benefits from active ship transactions, and the demand for financial leasing is expected to increase significantly. Operating leasing business benefits from the increase in ship rental and asset prices. Compared with financial leasing, the operating leasing term is shorter and the salvage risk is borne by the company. When the original lease expires, the rent of the new lease is expected to rise sharply. The market price of the company's ships is expected to be higher than the book value, and the disposal income is expected to increase significantly.
Shipping magnanimity transmission, the volume and price of newly signed orders rose, the renewal price of old orders increased, financing costs decreased, long-term financing costs locked. Therefore, we raise the company's 2021-2023 homing net profit forecast of HK $2.00 billion to HK $1.44 billion, corresponding to the PE of 4.8, 3.7, 2.9, PB, 0.70, 0.63, 0.56. In 2020, 0.77 times PB was lower than the industry average, and the dividend yield of 8.0% was higher than that of comparable companies. Considering the improvement of shipping cycle, the ROE hub of Chinese ship chartering companies is expected to be gradually improved from 12%. Maintain the buy rating.
Risk hints: the shipping cycle is not as good as expected; the price of ship assets is falling; the financial charterer is in breach of contract.
