Societe Generale Securities released a research report stating that it maintains COSCO Haineng (01138)'s “increase in holdings” rating, with a target price of HK$12.5. The overall logic of the oil transportation industry has not changed, and the long-term prosperity is still there. Tanker orders account for a low percentage of the fleet (for example, VLCC is 2%). At the same time, the aging of the fleet will accelerate the clearance of fleets, and the supply of tankers will be tight; demand is expected to rise steadily in the second half of the year. According to data announced by the company, demand per ton of crude oil per nautical mile is expected to increase by 6.6% in 2023. At the same time, the company's LNG business landscape continues to expand, providing revenue protection.
Societe Generale Securities's main views are as follows:
The overall boom in 2023H1 VLCC freight rates supports performance
2023H1's revenue was RMB 11.483 billion, up 54% year on year. Among them, domestic trade oil transport/foreign trade oil transportation/foreign trade LNG transportation revenue was 3053/75.6/870 million yuan, respectively, with year-on-year changes of +3.8%/+92.8%/+42.1%. The company recorded a gross profit margin of 35%, an increase of 26.6 percentage points over the previous year. It recorded net profit of 2,895 million yuan, an increase of 1531% over the previous year. In terms of foreign trade oil transportation, the company's VLCC tanker business has benefited from the overall boom in the 2023H1 market. At the same time, the company values diversification of route supplies and developing new customers and routes; the small and medium fleet mainly benefits from strengthening cooperation with large international oil companies and optimizing triangular route capacity.
Demand supports the market during the peak season, and the US increases production in response to production cuts in the Middle East
Looking ahead to 2023H2, on the oil supply side, OPEC+ production may decrease, which is expected to be covered by production growth in other non-OPEC countries (such as the US, etc.). According to IEA forecasts, global oil supply will reach 101.5 million b/d in 2023, an increase of 1.6 million b/d over the previous year. On the demand side, global oil demand will continue to grow, and China is expected to contribute 70% of the increase in demand.
Demand is geographically divided, and China, India and Brazil will support oil demand in 2023Q4
According to the IEA's latest report in October 2023, China, India, and Brazil will maintain a relatively rapid oil demand growth rate, supporting a year-on-year increase of about 2.3 mb/d in global oil demand this year, of which China's oil demand accounts for 77%. However, demand for US oil is low. September data shows that US gasoline consumption fell to its lowest point in 20 years. At the same time, oil demand in emerging markets will also be affected due to factors such as the cancellation of subsidies.
The peak oil season is here, and the company's diversified fleet benefits
The peak oil transportation season has arrived, and the Crude Oil Freight Price Index (BDTI) has recently risen rapidly. As of October 13, 2023, it has increased 31.9% month-on-month. The company's fleet has great operating flexibility. For example, for every 10,000 US dollars/day increase in TCE, the VLCC fleet will generate an additional 1,057 billion yuan in revenue, which will help the company benefit from a new round of peak season conditions.
Risk warning: 1) risk of changes in sanctions policies; 2) tanker accidents; 3) OPEC production cuts exceed expectations.