2023 results slightly miss our expectationsNanjing Tanker Corporation announced its 2023 results. Revenue fell 1.08% YoY to Rmb6,197mn, and net profit attributable to shareholders rose 8.55% to Rmb1,557mn, implying EPS of Rmb0.32. In 4Q23, revenue fell 17.4% YoY but rose 3.9% QoQ to Rmb1,549mn, and net profit fell 26.2% YoY and 2.0% QoQ. The company's 2023 results slightly missed our expectations, as freight rates were slightly lower than our expectations in 4Q23.
In 4Q23, average freight rate of TC7 route to which the firm has allocated lots of shipping capacity was US$21,300/day, down 14.3% QoQ and 52.5% YoY, and freight rates for refined oil products in the Pacific region fell 0.7% QoQ or 44.3% YoY in 4Q23.
Trends to watch Improving supply and demand conditions in refined oil transportation market lay foundation for an industry up-cycle.
Clarksons data shows that as of March 2024, overall orderbook as a percentage of fleet capacity was 10.6% for MR tankers, and 10% for older tankers that had been in operation of more than 20 years; deliveries of new MR tankers will account for 1.5% and 3.3% of the total fleet capacity at the beginning of the year in 2024 and 2025, and growth in demand for refined oil will be 7.3% and 0.3% (in tonne-miles). In addition, we believe the dismantling of old ships could accelerate amid higher requirements for environmental protection and Europe and the US' move to ramp up sanctions on transportation of Russian oil products, which may further constrain the expansion of MR vessel shipping capacity. No MR vessel has been dismantled YTD in 2024 and four were dismantled in 2023.
Average freight rates of small vessels have risen YTD due to the impact of the Red Sea tensions; we are upbeat on the firm's earningsupside. Average freight rates of small- and medium-sized oil tankers have risen markedly due to the Red Sea tensions. As of March 29, average freight rate for MR vessels on all routes rose US$60,000/day or 21% YoY, and average freight rate of TC7 route increased US$11,500/day or 45% YoY. We are upbeat on the firm's profitability as average freight rates tend up. In addition, the firm has gradually expanded its operations of routes in Atlantic regions starting from 2024.
We believe that with the expansion of routes operated by the firm and the increase in the capacity of MR POOL, the firm's cargo volume and price premiums could both increase, boding well for improvement in its profitability.
Financials and valuation
We keep our 2024 earnings forecast unchanged, and introduce a 2025 net profit forecast of Rmb2.28bn. The stock is trading at 7.5x 2024e and 7.5x 2025e P/E. We maintain an OUTPERFORM rating, but raise our target price 15.4% to Rmb4.5/sh to growing rising average freight rates and rising valuations, corresponding to 9.6x 2024e and 9.5x 2025e P/E, and offering 26.8% upside.
Risks
Falling global demand for oil products; geopolitical situation; a large increase in new vessel orders.
