What's new

Recently, Xingtong Shipping announced1 that CSIC-IMC Shipping (Shanghai) Co., Ltd started the construction of its first 13,000t duplex stainless-steel chemical cargo ship at a ship building & repair company in Zhoushan. The chemical cargo ship, which is one of the two vessels that have started construction after Xingtong Shipping acquired a controlling stake in CSIC-IMC Shipping, is scheduled to be delivered in early 2025. We think this marks an important step in the firm’s increased efforts to enhance shipping capacity.

Comments

Expanding shipping capacity as expected; maintaining leadership amid industry consolidation. As of end-2023, the capacity of the firm’s 33 vessels for bulk liquefied hazardous goods totaled 384,900 DWT. Specifically, about 75% of the capacity (27 vessels) was for domestic trade and 25% (six vessels) was for foreign trade. As of end-2023, the firm’s chemical cargo ships for interprovincial shipping in coastal regions accounted for 14.22% of the total capacity in the market, up 2.12ppt YoY. Including the 13,000t chemical tanker scheduled for delivery in early 2025, the firm has seven vessels in construction for domestic and foreign trade, with a combined shipping capacity of 101,000 DWT. We believe the firm will make continuous efforts to increase its shipping capacity and conduct M&A to cement its leading position and increase its market share.

Freight rates of chemical cargo ships in coastal regions have been under pressure YoY but rebounded QoQ YTD; demand recovering. As of mid-March, the average freight rate of chemical cargo ships in coastal regions has fallen YoY but rallied QoQ compared with 4Q23. We believe that demand for shipping domestic-trade chemicals has yet to fully recover. We think the weaker-than-expected demand recovery may weigh on contract of affreightment (COA) prices in 2024. However, given the firm’s leading position, we expect the proportion of its COA contracts and time charter parties to remain high.

Profit margin saw QoQ improvement and narrowed YoY decline in 4Q23; watch domestic trade demand and performance of foreign trade business. In 4Q23, gross margin fell 3.1ppt YoY but rose 5.4ppt QoQ to 34.5%, and net profit margin fell 0.8ppt YoY but rose 5.2ppt QoQ　　to 21.2%. Profit margin saw QoQ improvement and narrowed YoY decline, mainly thanks to the traditional peak season in 4Q23, in our view. By region, gross margin of domestic business fell 5.58ppt YoY to 36.05% in 2023, higher than that of the newly expanded overseas business (24.95%). Looking ahead, we suggest paying attention to the recovery of domestic trade demand in 2024. Moreover, given the firm’s entry into the foreign-trade water transport industry at end-2022, we suggest watching its performance as the shipping capacity increases.

Financials and valuation

Given weak demand, we lower our 2024 earnings forecast 9% to Rmb303mn and introduce our 2025 earnings forecast at Rmb364mn. The stock is trading at 13.0x 2024e and 10.8x 2025e P/E. We maintain OUTPERFORM. Considering the falling valuation of the hazardous chemicals logistics sector, we cut our target price 7.6% to Rmb19.5, implying 18.0x 2024e and 15.0x 2025e P/E, offering 38.9% upside.

Risks

Slowing output growth of upstream chemicals; slower-than-expected launch of new vessels.