COSCO SHIPPING HOLDINGS(601919)：1H24 RESULTS IN LINE;FULL-YEAR CASH AND EARNINGS TO INCREASE-格隆汇

机构：中金公司
研究员：Gangxian LIU/Qibin FENG/Xin YANG

　　1H24 results in line with our expectations COSCO Shipping Holdings announced its 1H24 results: Revenue rose
　　10.2% YoY to Rmb101.2bn and net profit attributable to shareholders came in at Rmb16.87bn, implying EPS at Rmb1.05 (+1.9% YoY). In 2Q24, revenue rose 19.0% YoY and 9.7% QoQ to Rmb52.93bn and attributable net profit increased by 7.2% YoY and 49.7% QoQ to Rmb10.12bn. In 2Q24, the Shanghai Containerized Freight Index (SCFI) rose 167% YoY and 31% QoQ.
　　The company's earnings increased more moderately YoY than freight rates, due to revenue from higher-priced long-term agreements in 2Q23 and YoY declines in interest income and FX gains. In 2Q24, the company's net financial income was Rmb777mn, in line with our expectation.
　　Earnings of COSCO Shipping Lines increased YoY in 1H24; earnings of Orient Overseas, a subsidiary in which the company holds a controlling stake, declined; profit of the terminal business was stable. In 1H24,
　　attributable net profit of COSCO Shipping Lines increased by 13.7% YoY; and it generated around Rmb10.08bn in earnings for the company. Orient Overseas’ attributable net profit declined by 26.2% YoY, generating about Rmb4.21bn in earnings for the company, weighing on overall earnings.
　　Management attributed the decline in earnings to falling freight rates of the Atlantic route and decreased shipping volume. Earnings of the terminal business remained stable. Attributable net profit of COSCO Shipping Ports slid 7.4% YoY.
　　The per-container cost of the container shipping business declined; the
　　supply chain business grew steadily. In 1H24, the per-container cost of the container shipping business dropped by 0.8% YoY, as container volume increased YoY and the company reduced vessel and voyage costs through increasing its self-owned shipping capacity and improving operating efficiency.
　　In 1H24, GM of the container shipping business rose 1.37ppt YoY. In addition, the supply chain and logistics business continued to grow. In 1H24, supply chain revenue other than shipping fees increased by 17.28% YoY to Rmb19.89bn.
　　Trends to watch
　　We think freight rates will likely decline, as demand weakens and shipping capacity increases. However, the company's earnings and dividend payments depend on the magnitude of declines in freight rates, in our view. We think the current freight rate cycle will boost the company's net cash and earnings and　　provide base-level support for the company. We maintain our opinion that freight rates will remain high for a longer period of time than expected, if demand does not weaken rapidly, and that high freight rates will bolster the company's full-year earnings and dividend payments.
　　Data from the US National Retail Federation (NRF) shows that US container imports continued to increase YoY over September-December. The company has ample cash on hand. As of end-2Q24, the company had Rmb173.6bn cash on hand (market caps of A-shares and H-shares at Rmb199.8bn and Rmb154.2bn). Cash on hand may continue to increase by end-2024. Based on our earnings forecast and a dividend payout ratio of 50%, we estimate that the dividend yields are 12.3% for A-shares and 15.9% for H-shares in 2024.
　　The dividend yields are attractive, in our opinion.
　　Financials and valuation
　　We keep our earnings forecasts unchanged. A-shares are trading at 4.0x 2024e and 8.3 x 2025e P/E. H-shares are trading at 3.2x 2024e and 6.3x 2025e P/E. We maintain OUTPERFORM ratings for A-shares and H-shares.
　　Given weakening risk appetite, we cut our target price 11.9% to Rmb16.3/sh for A-shares and 9.4% to HK$14.5 for H-shares. Our TP for A-shares implies 5.3x 2024e and 10.9x 2025e P/E, offering 31.2% upside. Our TP for H-shares implies 4.3x 2024e and 8.5x 2025e P/E, offering 35.0% upside.
　　Risks
　　Global demand for container shipping weakens; geopolitical uncertainties.