Since the second half of last year, the worsening geographical conflict has profoundly affected the shipping routes on which the global supply chain depends. From the outbreak of a new round of conflict between Palestine and Israel, to the continuation of the Red Sea incident, to the further escalation of the situation in the Middle East since this year, the outbreak of multiple incidents has spurred a sharp rise in shipping prices while also driving the upward trend in the Hong Kong stock shipping sector. This sector has continued for four consecutive quarters, and has risen nearly 15% since April this year.

Among the individual shipping stocks, the most notable one is Leclain Logistics (02490). The Zhitong Finance App noticed that the company's stock price started on April 12 and soared nearly 90% in a single day on April 16. Although the stock price declined somewhat thereafter, it regained its upward trend. On April 24-26, the company's stock price rose sharply again on April 24-26, and the stock price once rose to a record high of HK$14.12. In just two weeks, the stock price of Lecin Logistics has increased by nearly 150%.

As for the nearly half year of sideways trading, the stock price has finally “raised its eyebrows”, how is the continuation of this sharp rise in volume?

The main focus is a decline in business revenue, and a sharp decline in performance

The Zhitong Finance App notes that LeBin Logistics was founded in 2004 and is a private cross-border shipping logistics service provider in China. In the early days of its establishment, the company actively laid out key ports in China, set up branches to carry out cross-border logistics service business, and gradually grew from a freight forwarding service provider to an integrated cross-border logistics service provider. At present, the company's services cover all major aspects of the cross-border logistics process, including shipping, warehousing and sorting, customs clearance, cross-border shipping, warehousing transit and final delivery.

Since its development, Levin Logistics has initially established a logistics network reaching global logistics, covering major destinations in North America, Latin America, Europe, Australia, East Asia and Southeast Asia.

However, judging from the 2023 performance, Lecin Logistics is in a dilemma where both revenue and net profit have declined. During the period, the company's turnover reached 1,238 billion yuan (RMB, same below), a year-on-year decrease of 73.1%.

Looking at the breakdown, the company mainly operates two major business lines, namely cross-border logistics services and ship leasing services.

As the company's main source of revenue, revenue from cross-border logistics services declined sharply during the reporting period, from 4.389 billion yuan in 2022 to 998 million yuan in 2023, a sharp drop of 77.3% over the previous year. In response, the company admits that this is mainly because, on the one hand, the average price per TEU was reduced from 12,300 yuan in 2022 to only 4,000 yuan in 2023 against the backdrop of falling market freight rates and a decline in self-operated cross-border logistics business during the period. On the other hand, due to market conditions, the company's service volume also decreased from 355,700 TEUs in 2022 to 233,900 TEUs during the reporting period.

However, although revenue from ship rental services was basically the same as the same period in 2022, due to the decline in chartering rates in the second half of the year, the average daily charter rate also declined during the period, from 136,000 yuan in the same period last year to 191,000 yuan in 2023.

Although driven by an increase in the share of revenue from profitable ship rental services, the company's gross margin increased 6.5 percentage points year over year to 18.3%. However, against the backdrop of a sharp decline in revenue, the company's net profit plummeted 68.8% year-on-year to 119 million yuan during the period.

It is worth mentioning that in order to better withstand market risks, the company will take the opportunity to open its own routes while planning to develop overseas warehouse business to further build a full-link cross-border e-commerce logistics ecosystem integrating shipping, warehousing, and terminal delivery.

The “wave of price increases” in the off-season shipping season is coming

Despite the international conflict disrupting shipping prices and shipping demand, the shipping industry performed poorly in 2023. Recently, however, during the traditional low season in the industry, the shipping market has set off a wave of price increases, and many shipping giants have issued price increase notices one after another.

According to the Zhitong Finance App, Hapag-Lloyd and Dafei Shipping announced that starting April 15, they will continue to increase FAK rates for Asia and Europe routes. Among them, Dafei Shipping's freight rates for the 20 and 40 boxes on the Asian-European routes increased by 4.76% and 5.26%, respectively, compared to the beginning of the month. COSCO SHIPPING also issued a notice that from April 1 to April 14 this year, shipping prices from the Far East (eastern Asia including China) to the US and Canada will rise sharply, by 1,000 to 2,000 US dollars. Based on the current average freight rate between China and the US about 3,000 US dollars, the increase is close to 70%. In addition, shipping companies such as Mediterranean Shipping have raised FAK rates for Black Sea and Mediterranean routes. Meanwhile, in the next May, eight shipping companies, including Changrong and Dafei, all indicated that they would charge additional comprehensive rate surcharges.

Meanwhile, on April 26, the Shanghai Export Container Freight Index (SCFI) reported 1940.63 points, up 171.09 points from the previous period, and successfully achieved four consecutive increases. The China Export Container Freight Composite Index (CCFI) also performed well, reporting 1193.64 points, up 0.6% from the previous period. Judging from the above data, global trade activity and shipping market demand seem to be “picking up”.

According to analysis by relevant sources, the main reasons for this “wave of price increases” are the following two major factors.

On the one hand, rising demand for inventory replenishment has given shipping companies an incentive to raise prices. It points out that the volatile situation around the world has led buyers to tend to maintain inventory at a high level to deal with possible risks and challenges. This change has changed from a trend of inventory removal over the past two years to a short-term increase in trade demand.

On the other hand, when the geographical situation pushes up transportation costs, shipping companies will seek price increases to ease cost pressure. Traffic efficiency in the Red Sea and the Mediterranean waterway is poor, and the slowdown in capacity turnover brought about by circumventing the Cape of Good Hope is also an important factor leading to the rise in freight rates. Due to the capacity gap caused by container ships orbiting, freight rates may rise. This shortage of capacity may support the rise in freight rates for a certain period of time.

However, at present, it seems that the recovery in global trade is still difficult to support the continued rise in international freight rates such as shipping.

Kang Shuchun, chairman of the International Freight Forwarding Branch, pointed out that the main reason for the current sharp rise in international shipping prices is that there are many temporary market fluctuations, giving shipowners an opportunity to readjust routes and freight rates, and create a tense atmosphere. Judging from market order feedback, trade fundamentals to support the continued rise in freight rates in the future are insufficient. Freight rates are expected to fall before July of this year, while shipowners' financial data will not be favorable.

Guangfa Futures, on the other hand, said that the impact of the current geopolitical incident has reduced the upward market space to a certain extent. Fundamentally, demand may pick up in the second quarter, but due to the European macroeconomic environment, the currently expected degree of improvement is still limited, and the volume of supply investment in the European route is high, and the medium term freight rate may still fluctuate weakly. Furthermore, the future of the Israeli-Palestinian agreement, the progress of the Red Sea issue, and changes in the supply and demand relationship are all variables that the market needs to pay close attention to.

However, Guotai Junan Futures said that judging from the global macro and geographical pattern this year, supply chain disruptions may become the norm, and shipping prices may also break traditional seasonal rules. With the slight month-on-month expansion of booking volume in May and the supply-side being affected by factors such as detours and ship operator control of space, the supply of capacity will decrease marginally. Meanwhile, the improvement in the supply and demand relationship will raise expectations that price increases will come true. It is expected that in the second quarter, with the introduction of easing policies in overseas markets, there may be a pattern of phased expansion of total demand.

Taken together, the market's optimistic expectations for the shipping industry were successfully transmitted to the stock price trend of Cabin Logistics. However, judging from the company's sharp decline in performance, it seems difficult for Lebin Logistics, which has a relatively single business, to support such a huge increase.

Furthermore, it is also important to note that LeBin Logistics has obvious characteristics of retail stocks. The company's equity concentration is extremely high, and the Xu Xin family's total shareholding in Lexin Logistics is as high as 55.85%. At the same time, the stock price has been flat for a long time and trading has been sluggish, and the market is relatively small. As of April 26, the company's latest market value was only HK$3.63 billion. This also indicates that even though it is part of the popular concept of shipping stocks, Lexin Logistics is still a “stock” with a high investment risk in the market. Boosting usually only a small amount of shares can cause a sharp rise in stock prices, leading to the trend in the secondary market. Investors need careful observation as a good policy.