The Zhitong Finance App learned that CICC released a research report stating that the “outperforming industry” rating for Pacific Shipping (02343), considering that the dry bulk transportation market cycle is expected to improve, the profit in 2025 was raised 38% to US$350 million, keeping the profit unchanged in 2024, and the target price was raised by 10.5% to HK$3.15. The bank assumes that in 2024, the company will pay dividends at the promised minimum dividend rate of 50%, corresponding to a dividend rate of 7.9%. If the dividend rate in 2024 remains at the level of 75% last year, corresponding to a dividend rate of 12.2%, the company's dividend is attractive.

The main views of CICC are as follows:

The company announced 1Q24 business conditions:

The core business of 1Q24 Company's core business, Xiaoling and Super Easy, achieved TCE freight rates of 11,050 US dollars/day and 13,610 US dollars/day, respectively, with year-on-year declines of -18%/flat, exceeding the market spot index of 540 US dollars/day and 1,300 US dollars/day respectively. They mainly benefited from the company's flexible business strategy and fleet structure with a high proportion of ships installing desulfurization towers. Among them, the installation of desulfurization towers contributed 30 US dollars/day and 940 US dollars/day respectively.

The announcement of the buyback plan shows business confidence.

The company announced that it plans to implement a repurchase plan starting from April 25, 2024 to December 31, 2024. The maximum repurchase capital is US$40 million (approximately HK$312 million). According to the closing price on April 18, the repurchase share will account for up to 2.45% of the company's issued shares. The bank believes that the company has a stable balance sheet and plenty of cash. As of the end of last year, the company's available working capital was 550 million US dollars, and the total loan amount was less than 300 million US dollars. The repurchase shows the company management's confidence in the company's operating capacity and growth prospects, but the current repurchase plan still needs to be approved by the shareholders' meeting.

The supply growth rate is still limited, and the demand side may gradually improve, and the dry bulk market is expected to start an upward cycle.

Affected by restrictions on traffic in the Red Sea and the Panama Canal, the effective capacity of dry bulk carriers declined, compounded by improvements in global economic activity in 2024. BSI was +25.6% year to date, and BHSI was +22.7% year over year. The bank believes that traffic restrictions in the Red Sea and Panama will continue until the second half of 2024, thus providing support for dry bulk freight prices.

Looking backwards, as of April 2024, active orders for Xiaolingbianship and Super Dragon Boat accounted for 10.2%/9.2% of capacity, respectively, while old ships aged 25 and over accounted for 4.4%/9.0% of capacity. According to Clarksons, in 2024/2025, the capacity of convenient ships was +4.4%/+3.3%, and demand for small bulk cargo transportation was +4.0%/+3.3%. Considering the slowdown in sailing speed and the increase in ship scrapping volume under stricter environmental regulations, the effective supply growth rate is expected to decline further. If the growth rate of small ships improves in the future, the growth rate of small ships is expected to decline further. Bulk cargo transportation requirements Increased, and the market is expected to start an upward cycle.

The company's fleet structure continues to be optimized, which is conducive to improving profitability.

According to the company's announcement, 1Q24 sold a 20-year-old Xiaoling ship. In addition, the company signed a long-term lease agreement to lease 11 newly built ships in 2023 (currently 8 ships to be delivered). According to the company's announcement, the new long-term leasing will have a profitability exceeding the company's current core Xiaoling and Super Flexible fleets by about 20%.

Risk: The dismantling of old ships falls short of expectations, and the growth rate of the global economy falls short of expectations.