1H24 results are in line with our expectations

The company announced 1H24 results: revenue of 1.301 billion US dollars, +3.8% year over month, +10.6% month on month; net profit to mother of 0.351 billion US dollars, corresponding to diluted earnings of 0.13 US dollars per share, +13.0% year on year, and +58.6% month on month. The company's performance is in line with our expectations. 1H24's gross margin improved year on month. In the first half of the year, it achieved a gross profit margin of 31.0% and +4.5ppts compared to the same period. It mainly benefited from the cost side improvements brought about by the company's freight rate improvement, the increase in the share of owned ships and the decline in charters for outsourced vessels in the first half of the year. 1H24's single box cost changed -11.4%/-0.3% year over month, and single box revenue changed -5.7%/+8.6% year over month.

2Q24 The volume and price of the company's container shipping business rose sharply. In the second quarter, the company's container shipping volume changed +12.1%/+28.9% month-on-month, and single container revenue (after class exchange) was +42.6%/+18.7% month-on-month. The increase in freight rates mainly benefited from increased demand from Europe and the US, and the Red Sea detour indirectly consumed capacity in the Southeast Asian market. 2Q24CCFI Southeast Asia Freight Index +22.6%/+37.9% YoY, Japan Freight Index -5.5%/-16.0% YoY, Korea Freight Index -4.5%/-18.6% YoY.

The company's mid-term dividend rate is 70%, and dividends are attractive. According to the announcement, the company announced a 70% dividend, which is in line with the 2023 dividend rate. We believe that if the company maintains a dividend rate of 70% throughout the year, the current stock price corresponds to the 2024 dividend rate of 8.7%, and the dividend will be attractive.

Development trends

Looking at the long term, we believe that the Asian regional market has limited new capacity and old ships account for a relatively high share. The demand side is expected to benefit from continued growth in industrial transfers within the region, and the supply and demand pattern will improve year by year. According to Clarksons data, the capacity growth rate of small ships below 3,000 TEU is 6.2% this year, and 1.7% of new capacity is expected to be delivered in 2025, and old ships aged 20 and above account for 24% of the capacity. We believe that with subsequent dismantling of old ships and the decline in environmental requirements, the effective capacity growth rate may decline further. On the demand side, we believe that benefiting from industrial transfers between China and Southeast Asian countries, the volume of goods in the Asian region is expected to continue to grow. According to Clarksons forecast, container capacity within the Asian region is +4.5%/+3.2% in 2024/2025.

Profit forecasting and valuation

As high season freight rates in the fourth quarter are expected to exceed expectations, we raised net profit for 2024 and 2025 by 8.4% and 10.1% to $0.73 billion and $550 million. The current stock price corresponds to 8.1 times the 2024 price-earnings ratio and 10.6 times the 2025 price-earnings ratio. Maintaining an outperforming industry rating, considering the industry's declining risk appetite, we kept our target price of HK$24.3 unchanged, corresponding to 11.5 times the 2024 price-earnings ratio and 15.1 times the 2025 price-earnings ratio. There is 42.9% upside compared to the current stock price.

risks

Geopolitical risks have changed, and global economic growth has declined.