2024 results miss our expectations

Nanjing Tanker Corporation announced its 2024 results: Revenue rose 4.5% YoY to Rmb6.48bn and attributable net profit grew 23.4% YoY to Rmb1.92bn, implying EPS of Rmb0.4. The firm’s YoY earnings growth was mainly driven by the sale of four old vessels, as it recorded an asset disposal income of Rmb267mn in 2024.

In 4Q24, revenue fell 5.3% YoY and 0.9% QoQ to Rmb1.47bn, and attributable net profit declined 25.0% YoY and 39.1% QoQ to Rmb265mn.

The results missed our expectations, primarily due to sluggish freight rates for refined oil products during the 4Q24 peak season. MR freight rates for Pacific routes declined 37.9% YoY and 25.9% QoQ in 4Q24. In 2024, MR freight rates for Pacific routes was US$29,799/day, up 1.2% YoY.

Trends to watch Supply remained tight; sanctions on shadow fleets may further reduce supply of effective shipping capacity; sector up-cyclepersists. We believe the supply and demand dynamics will continue to improve in the long term. According to Clarksons, backlog orders for MR vessels account for 16% of total shipping capacity, and 41% of existing vessels have been in use for over 15 years. We believe new vessel orders cannot meet future replacement demand. In addition, factors such as the tightening of the US sanctions on shadow fleets (mostly small and medium-sized vessels transporting Russian oil), stricter environmental regulations, and fleet aging are also constraints on the effective shipping capacity of MR vessels. We expect the sector up-cycle to continue.

Optimization of fleet structure and balance sheet; share buybacks toimprove shareholder returns. In 2024, the firm sold four old vessels to optimize its fleet structure and repurchased two leased vessels in 1H24 to further reduce interest-bearing liabilities. In addition, the firm expanded its operating capacity through pool leasing. As of late 2024, the firm operated 75 vessels, including 39 MR vessels. The firm’s shareholder returns continued to improve. In 2024, the firm’s share repurchases accounted for 1.05% of total share capital. Meanwhile, financial statements of the firm’s parent company show an accelerated turnaround in undistributed profits.

As of late 2024, the undistributed profit loss was Rmb1.57bn, representing a reduction of Rmb190mn compared to the end of 3Q24. According to the firm’s announcement, if relevant policies confirm that the firm is eligible to use its capital reserves to cover losses, the firm will use capital reserves to cover the losses and distribute dividends to investors as soon as possible to boost shareholder returns and support valuation improvement.

Financials and valuation

As freight rates have missed expectations since the beginning of 2025, we cut our 2025 earnings forecast 33.8% to Rmb1.51bn and introduce our 2026 net profit forecast at Rmb1.52bn, implying 9.7x 2025e and 9.6x 2026e P/E. We maintain an OUTPERFORM rating. As risk appetite strengthens in the sector, we cut our target price 11.9% to Rmb3.7, implying 11.8x 2025e and 11.7x 2026e P/E and offering 21.7% upside.

Risks

Geopolitical risks; sharp increase in new vessel orders.