Incident: China Merchants Shipping announced its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 25.88 billion yuan, a year-on-year decrease of 12.9%, and achieved net profit of 4.84 billion yuan, a year-on-year decrease of 4.9%; in the first quarter of 2024, the company achieved revenue of 6.25 billion yuan, an increase of 6.3% over the previous year, and achieved net profit of 1.38 billion yuan, an increase of 22.6% over the previous year. At the same time, the company plans to combine cumulative undistributed profit with net profit attributable to listed shareholders realized in the current period. Based on the total share capital as of June 30, 2024, the total amount of cash dividends will not exceed 50% of the net profit attributable to listed shareholders realized in the current period (consolidated statement size).

The company's diversified business portfolio is stable and elastic, and can effectively span the cycle and achieve steady growth. The company has initially formed an oil, dispersion, gas, vehicle, and full-ship fleet layout with oil and gas transportation and dry bulk cargo transportation as the dual core. By business, in 2023, the company's tanker transportation business achieved revenue of 9.67 billion yuan, accounting for 37.4%; the bulk cargo transportation business achieved revenue of 7.11 billion yuan, accounting for 27.5%; the container transportation business achieved revenue of 5.54 billion yuan, accounting for 21.4%; the company's new business growth point, the role-loading shipping business achieved revenue of 1.96 billion yuan, accounting for 7.6%.

Benefiting from changes in the trade structure, the global average transit distance has risen, and demand for shipping continues to grow. According to Clarkson research data, global seaborne trade increased 3% to 12.4 billion tons in 2023. At the same time, benefiting from changes in the trade structure, the overall global average transit distance increased. Global tonnight-mile trade increased sharply by 5% in 2023, and energy trade was particularly impressive. Among them, ton-nautical mile trade of crude oil and refined oil products increased by 7% and 10%, respectively.

The growth rate of capacity will slow down in the next 2-3 years, and the scale of effective global capacity is manageable. Global fleet capacity increased by 3.2% to 2.34 billion dwt in 2023. Currently, orders for new ships in the world account for 11% of the fleet, which is still at a historically low level. The nominal capacity growth rate of the global fleet is expected to slow further to 2.5% and 1.9% in 2024-2025. At the same time, the fleet is entering an aging phase. Coupled with increasingly strict environmental protection conventions, the effective capacity supply is expected to be lower than the nominal capacity supply. The new shipbuilding capacity of major Chinese and South Korean shipyards is expected to be tight until 2028, and the supply side scale of the global shipping industry will be manageable for at least the next few years.

Profit forecasts and investment suggestions: Geopolitics, climate, and unforeseen events may affect the stability of the shipping supply chain in the future. At the same time, global capacity growth is slowing down, demand rises due to trade restructuring, and the shipping industry continues to improve. We are optimistic that the company can achieve a further increase in revenue under a diversified business pattern. The company's net profit for 2024/25/26 is expected to be 69.5/76.1/8.56 billion yuan, respectively. EPS is 0.85 yuan, 0.93 yuan, and 1.05 yuan respectively, maintaining a “buy” rating.

Risk warning: risk of macroeconomic fluctuations, risk of fuel price fluctuations, risk of freight price increases falling short of expectations, etc.