The Zhitong Finance App learned that Guotai Junan released a research report saying that maintaining the “increase in holdings” rating of China Ship Leasing (03877), profits grew steadily in 2023, which was basically in line with expectations. The net profit forecast for 2024-25 is HK$2,22.4 billion, with an additional forecast of HK$2.6 billion for 2026, with a target price of HK$2.06 billion. The company is committed to procyclical operations, and it is expected that profit sustainability will exceed expectations. The dividend rate is beginning to rise. Orders may continue to be placed cautiously in the next few years, and the dividend rate is expected to gradually increase.

Guotai Junan's main views are as follows:

Results grew steadily in 2023, and long-term rental profits increased significantly.

At the end of 2023, the company's fleet size was 151 ships (including orders), of which 128 were in operation, down 1 from the end of 2022. Net profit of HK$1.9 billion (+10%) was achieved in 2023, which is generally in line with expectations. Among them, there were 102 long-term leasing (leasing+long-term leasing) ships, a slight decrease of 1 compared to 2022. Thanks to the delivery of 2 new 24,000-container ships, the increase in the size of long-term rental assets and the reduction in the share of US debt and the optimization of the debt structure, the net long-term rental profit is estimated at HK$1.4 billion, an increase of 25%. We expect the gradual delivery of on-hand orders over the next two years to ensure continued steady growth in long-term rental profits.

Short-term rental profits declined slightly in 2023, and future profits may continue to exceed expectations.

In 2021-22, the company actively operated in a procyclical cycle, and short-term rental business (own+joint venture) profits continued to grow. A total of 26 short-term own/joint ventures were carried out in 2023. The scale remained stable, and a net profit of HK$500 million was recorded, a reduction of 19%. 1) Refined tankers: Net profit of HK$340 million, an increase of 10%; 2) Net profit of the LPG fleet was HK$90 million, an increase of 143%; 3) Net profit of the bulk carrier fleet was HK$80 million. The decline in dry bulk market sentiment and the company's pursuit of a steady business model with high utilization rates reduced profits by more than 60%. Considering that the capacity utilization rate of the refined oil transportation market has exceeded the threshold, the future boom will rise and continue or exceed expectations. The company will fully benefit from the rise in refined oil transportation, and the sustainability of profits may exceed expectations.

The dividend rate is currently increasing in 2023, and high dividends can be expected in the future.

Since the company went public, the dividend rate has declined year by year, and the capital expenditure cycle is behind it. The dividend rate increased for the first time in 2023, to 39%. In 2023, 18 new ship orders were signed, 2 fewer than in 2022. Orders may continue to be placed with caution in the future. At the end of 2023, the company was ordering 23 ships, a reduction of 6 ships compared to the end of 2022, and future capital expenditure will be reduced. The company has long attached importance to shareholder returns, and it is expected that the dividend rate will gradually increase. The company's PE valuation is less than 4 times. If the dividend rate increases to 50%, the dividend rate will increase to 14%.

Risk warning: risk of default, economic fluctuations, interest rate and exchange rate risk, geographical situation, etc.