CICC: Maintains The Pacific Shipping (02343) at outperform rating, raises target price to 2.4 Hong Kong dollars.

CICC released a research report stating that it maintains The Pacific shipping (02343) profit forecast unchanged. The current stock price corresponds to 9.8 times the 2025 price-to-earnings ratio and 8.8 times the 2026 price-to-earnings ratio. The outperform industry rating remains unchanged, considering the improvement in industry risk preference, the company's target price was raised by 14.3% to HK$2.4 per share, corresponding to 10.1 times the 2025 price-to-earnings ratio and 9.1 times the 2026 price-to-earnings ratio, with a 4.3% upside potential from the current stock price. Key points from CICC are as follows: Underperformance in 1H25 results compared to the bank's expectations The company announced 1H25 results: revenue of USD 1.019 billion, a year-on-year decrease of 20.5%, net profit attributable to owners of USD 26 million, corresponding to earnings per share of HK$3.9, a year-on-year decrease of 55.6%. In the first half of the year, the company sold 5 old ships. Excluding asset disposal gains, the company's basic profit in 1H25 was USD 22 million, a year-on-year decrease of 50%. The company's performance fell short of the bank's expectations mainly due to achieving lower than expected TCE in the first half of the year. Driven by industry freight rate impacts, the company achieved a year-on-year decline in shipping rates in the first half of the year, but still better than the industry average In the first half of the year, the BHSI and BSI indices decreased by 21.6% and 30.0% respectively year-on-year. The company's handysize and panamax ships achieved TCE rates of USD 11,010 per day and USD 12,230 per day respectively, a decrease of 7% and 11% year-on-year, respectively exceeding market indices by 27% and 40%. Continued share buybacks and stable dividend ratios in the first half of the year, with a robust balance sheet According to the company's early announcement, it planned to use no more than HK$312 million for share buybacks in 2025. As of the end of June, the company had repurchased 93 million shares, accounting for 1.8% of the initial capital stock, with a buyback amount of HK$164 million. In 1H25, the company's interim dividend ratio was around 50% (excluding earnings from ship sales), maintaining a stable dividend policy. The company's balance sheet remains strong, with a net cash balance of USD 66 million as of 1H25. In addition, the company significantly reduced long-term borrowings compared to the end of 2024 through convertible bond conversions and loan repayments, further improving the company's cash position and reducing future interest payment pressure. According to the company's announcement, it is expected that all convertible bonds will be converted or redeemed by August 14. Limited new supply, optimistic about improving supply-demand for small ships, continuous optimization of ship fleet structure to build long-term competitive advantages According to Clarksons, as of July 2025, the order backlog for handysize and panamax vessels was 11.3% and 8.8% respectively, while the proportion of vessels over 20 years old was 12.1% and 14.5% respectively, with new vessels mainly used for vessel renewal. On the demand side, small bulk demand is more closely related to the global economy. The bank believes it is expected to benefit from the continuous improvement in global economic growth. As the peak season for grain exports in the second half of the year approaches, small ship freight rates may perform well. In addition, small ship freight rates are highly correlated with large ship rates. If the demand side for large ships accelerates in the future (such as the commissioning of the West Mangdu project), it is expected to further improve the supply-demand pattern for small ships. In the first half of the year, the company sold 5 old ships and bought 3 ships with an average age of 6 years to enhance the long-term competitiveness of its fleet. Risk warning: Global economic growth slowing down, significant increase in new orders for dry bulk ships, geopolitical changes.