Guotai Haitong: Maintains a "buy" rating on CSSC SHIPPING (03877) and raises the target price to HK$2.72

Guotai Haitong released a research report stating that it maintains a "buy" rating on CSSC SHIPPING (03877). The company's performance in the first half of 2025 is under pressure compared to the previous year, with a slight 5% decrease in pre-tax profit after excluding the impact of the China Hong Kong International Tax Reform. Taking into account the impact of income tax, net profit forecasts for 2025-27 have been lowered to HK$2.2/2.4/2.5 billion. Currently, the PE valuation is only 5.5 times, with a dividend yield of 7.3%; if the future dividend payout ratio increases to 50%, the dividend yield will increase to 9%. Considering the industry's average PB valuation of 1.16x, the target price has been raised to HK$2.72. Guotai Haitong's main points are as follows: The impact of the China Hong Kong International Tax Reform on performance, with pre-tax profit remaining stable The company recorded a net profit of HK$1.15 billion in the first half of 2025, a 14% decrease year-on-year, not continuing the rapid growth trend of previous years. The main reasons for this, according to the report, are: 1) The China Hong Kong International Tax Reform: The company has been applying the OECD Pillar Two model rules since the beginning of 2025, leading to a nearly HK$120 million year-on-year increase in income tax in the first half of the year. Hong Kong has implemented the Minimum Taxation of Multinational Enterprises (HKMTT) Act, which requires large multinational enterprises with comprehensive income exceeding 750 million euros and an actual tax rate below 15% to pay the minimum tax of 15% and apply it retroactively from the beginning of 2025. Excluding the impact of income tax, the company's pre-tax profit in the first half of 2025 only slightly decreased by 5%. The company's fleet size is 143 vessels (including orders), with 121 operating vessels. The report estimates that the long-term leasing (financial leasing + long-term operating leasing) of 86 vessels is stable in profit, while the short-term leasing (self-operated + joint venture) of 35 vessels is subject to profit fluctuations due to changes in the shipping industry. In the first half of the year, the profit of the joint venture company operating oil tankers halved year-on-year, and the operating leasing income of 3 additional container vessels offset certain related impacts. The peak season for finished oil transportation can be expected to drive performance improvements in the second half of the year The company's profit elasticity comes from short-term leasing operations, with the MR fleet of finished oil tankers expected to drive performance improvements in the second half of the year. Finished oil transportation benefits from the global shift of refineries to the east. In the second half of 2024, due to geopolitical oil prices and excess capacity overflow of crude oil tankers, the market fell to a low point. Since 2025, the finished oil transportation market has steadily recovered. In the short term, over the past few months, European imports of finished oil have continued to rebound, with prices soaring in the westward market and driving the eastward market, which is expected to boost performance in the peak season of the fourth quarter of 2025. In the medium term, the shift of refineries to the east will continue to drive demand growth for finished oil transportation, and profits of finished oil tankers are expected to remain stable or increase. Increased interim dividends in 2025, with expectations of further improvement in shareholder returns The company's dividend payout ratio was 40% in 2024. Considering the expected decrease in capital expenditure in the future, the report believes there is room for the dividend payout ratio to increase. Since its listing, the company has maintained an interim dividend of HK$0.03 per share, which was raised for the first time to HK$0.05 per share in the first half of 2025, demonstrating its commitment to actively rewarding shareholders. Currently, the PE valuation is only 5.5 times, with a dividend yield of 7.3%; if the future dividend payout ratio increases to 50%, the dividend yield will rise to 9%. Risk factors include default risk, economic fluctuations, interest rate and exchange rate risks, geopolitical situations, etc.