Shipping business volume and prices are rising together, is the real value of COSCO Shipping Holdings (01919) waiting to be reassessed?

After the news of being listed on the CMC list, the stock price of COSCO Shipping Holdings (01919) has recently experienced a significant drop. In the five trading days from January 6th to 10th, the company's stock price fell by over 10% and has not yet recovered to above HK$12. On the news front, on January 6th, the US Department of Defense released a list of Chinese military companies (CMC), prohibiting companies on the list from signing contracts for goods and services with the US Department of Defense. COSCO SHIP INTL (00517), COSCO Shipping (North America), and COSCO Shipping Finance were included. In response, COSCO Shipping Group stated that it will not have an impact on the group's business and global operations. Looking back at 2024, with the rapid recovery of the shipping industry, the performance of COSCO Shipping Holdings has also seen significant improvement. However, despite the high level of industry optimism, COSCO Shipping Holdings is also facing uncertainties. Revenue and net profit increased by over 90% Recently, COSCO Shipping Holdings announced strong performance results, with all performance indicators showing significant growth. According to performance forecasts, the group's EBIT for 2024 is expected to be approximately RMB 69.926 billion, a year-on-year increase of approximately 90.67%; net profit is expected to be approximately RMB 55.372 billion, a year-on-year increase of approximately 94.99%; net profit attributable to shareholders of the listed company is expected to be approximately RMB 49.082 billion, a year-on-year increase of approximately 105.71%; net profit attributable to shareholders of the listed company after deducting non-recurring gains and losses is expected to be approximately RMB 48.989 billion, a year-on-year increase of approximately 106.25%. It is understood that in the first three quarters of 2024, COSCO Shipping Holdings also achieved high year-on-year growth. The company achieved operating income of RMB 174.737 billion in the first three quarters, a year-on-year increase of 29.80%; EBIT was RMB 54.413 billion, a year-on-year increase of 63.72%; net profit was RMB 43.346 billion, a year-on-year increase of 66.69%; net profit attributable to shareholders of the listed company was RMB 38.124 billion, a year-on-year increase of 72.73%. In particular, the container shipping business achieved both volume and price increases. In the first three quarters, the company's container business completed a bill of lading volume of 19.0397 million TEUs, a year-on-year increase of 9.07%, achieving revenue of RMB 168.840 billion, a year-on-year increase of 30.57%; terminal business completed a total throughput of 107.2673 million TEUs, a year-on-year increase of 7.08%, achieving revenue of RMB 7.944 billion, a year-on-year increase of 6.49%. The supply chain revenue for container shipping business, excluding marine shipping, was RMB 30.711 billion, a year-on-year increase of 19.66%. As a leading shipping company, COSCO Shipping Holdings' container shipping and terminal operation management sectors have always been at the forefront globally. As of mid-2024, the company's self-owned container fleet size was 527 ships, with a total capacity of over 3.24 million TEUs; it operates and manages 371 berths in 39 ports around the world, including 224 container berths, with an annual handling capacity of approximately 123 million TEUs. In 2024, COSCO Shipping Holdings continued its high dividend distribution style, highlighting long-term investment value. As of October 25, 2024, COSCO Shipping Holdings had completed the distribution of mid-term cash dividends for both A shares and H shares, totaling approximately RMB 8.3 billion (including tax), close to half of the net profit attributable to equity holders in the first half of the year. Strong market optimism in the shipping industry boosts performance recovery In the past year, the shipping industry has seen a strong recovery, with increasing demand driving the container shipping market into a state of continuous growth. Alphaliner's latest analysis shows that as of the end of 2024, the number of idle vessels in the global container fleet was only 58, with idle capacity of only 35,000 TEUs, a negligible amount. Under the dual pressure of global instability and rising transportation costs, freight rates have unexpectedly increased. Data shows that in 2024, the average Shanghai Containerized Freight Index (SCFI) and China Containerized Freight Index (CCFI) were 148% and 64% higher than in 2023, maintaining high levels for most of the year. However, at the same time, as shipping companies change routes to avoid congestion, shipping costs have also increased. In addition, the revival of international trade demand has led to an increase in container handling fees, prompting many shipping companies to adjust their freight rates to compensate for the additional expenses incurred by detours. Since November 2024, top shipping companies such as MSC, Maersk, and CMA CGM have announced rate adjustments, with Hapag-Lloyd announcing an increase in FAK rates between the Far East and Europe, and Maersk announcing an increase in FAK rates between the Far East and Northern Europe from December 2, 2024. By the end of 2024, although it was the traditional off-peak season for foreign trade, there was still growth in export and shipping data, indicating a significant increase in activity during what is typically considered a slow season. According to data released by the General Administration of Customs, in the first 11 months of 2024, the total value of China's import and export trade was RMB 39.79 trillion, a year-on-year increase of 4.9%, with exports reaching RMB 23.04 trillion, a year-on-year increase of 6.7%; in November 2024 alone, China's goods exports increased by 5.8%. According to data released by the Ministry of Transport, in the first 11 months of 2024, the cumulative cargo throughput of ports nationwide was 16.04 billion tons, a year-on-year increase of 3.4%, with foreign trade throughput reaching 4.96 billion tons, a year-on-year increase of 7.3%, and container throughput reaching 304 million TEUs, a year-on-year increase of 7.3%. In the long term, the trend is promising.Global demand is continuing to rebound, with an increase in China's exports, particularly in the demand for routes from Asia to Europe, America, and emerging markets showing remarkable performance. In the short term, the expectation of Trump's administration imposing additional tariffs has prompted major players in China-US trade to increase their inventories in advance, while the ongoing tensions in the Red Sea have led to insufficient effective capacity supply and rising shipping prices.Looking ahead to 2025, industry insiders expect that the overall shipping market in 2025 may show a trend of highs and lows, with the uncertainty of the supply chain compounded by the official implementation of the "EU Maritime Fuel Regulation" requirements for green fuel blending, which will bring cost pressures that will also be transmitted to shipping freight rates. Huayuan Securities also pointed out in a recent research report that the slowdown in the delivery of new ships, along with the increasing costs due to the continuous navigation around the Red Sea and environmental regulations, may lead top shipping companies to actively control supply capacity at profitable levels; fragile supply chains may face short-term market fluctuations when dealing with uncertain factors such as strikes at East Coast ports and the imposition of additional tariffs by Trump 2.0. In the long run, after the implementation of Trump's tariff policy, export trade will be restricted, leading to a fall in freight rates, while the impact on the China-US route may be favorable for routes within Asia and South America. It is understood that in 2024, COSCO Shipping Holdings has been active in building an integrated full-chain service brand of "container shipping + ports + related logistics". For example, the company's wholly-owned subsidiary acquired a 12% stake in China COSCO Shipping Supply Chain, with a transaction amount of up to 2.143 billion yuan, strengthening its voice in supply chain management; investing nearly 1 billion yuan in Shenzhen Yan Tian Port Holdings to become the second largest shareholder after the completion of the transaction; and injecting 1 billion yuan into Anji Logistics to further enhance cooperation in the automotive transportation sector. In 2024, COSCO Shipping Holdings also signed a new project with Everbright Jinlian and Jiangsu Hantong Shipbuilding for the construction of a 82,000-ton bulk carrier to meet potential market demand in the future. Despite various uncertainties such as falling freight rates, benefiting from the overall bullish market sentiment, COSCO Shipping Holdings is expected to continue to perform well in the future. As a leading player in the shipping industry for many years, COSCO Shipping Holdings has strong bargaining power upstream and downstream, as well as the advantages of high dividend yield and stable dividend payout, still offering high allocation value.