Huachuang Securities: Continue to be bullish on the upward opportunities across all vessel types in the shipping industry; strong Q3 earnings growth confirms the logic.

Huachuang Securities released a research report stating that in 2026Q3, the prosperity of the four major shipping segmentsoil tanker, dry bulk, container, and specialized shippingremained at a high level, and the performance of major shipping companies increased significantly year-on-year. In the oil tanker segment, the average Q3 freight rate on the VLCC Oman route reached US$175,000/day, a year-on-year surge of 394%. China Merchants Energy Shipping (601872.SH) and COSCO SHIPPING Energy Transportation (01138) recorded single-quarter net profit attributable to parent of RMB5.02 billion and RMB2.84 billion, respectively, both hitting new historical highs, with Q4 freight rate elasticity expected to be even greater. The dry bulk BDI averaged a year-on-year increase of 54%, and the dry bulk business performance of Fujian Highton Development (603162.SH) and China Merchants Energy Shipping continued to grow rapidly. The container CCFI averaged a year-on-year increase of 55%, and COSCO SHIPPING Holdings (01919) recorded Q3 net profit attributable to parent of RMB17.23 billion, up 80.7% year-on-year. Specialized shipping benefited from the high prosperity of automobile exports, with COSCO SHIPPING Specialized Carriers (600428.SH) Q3 net profit attributable to parent up 147% year-on-year. Continue to be bullish on the upward opportunities across all vessel types. The original text of the Huachuang Securities report is as follows: Oil Tanker: China Merchants Energy Shipping and COSCO SHIPPING Energy Transportation Q3 performance hits new highs again, Q4 elasticity expected to be released to a greater extent Market Review Since the beginning of this year, the oil tanker market has been comprehensively affected by multiple factors including geopolitical conflicts, changes in supply and demand structure, trade changes leading to reduced oil tanker efficiency, oil-exporting countries conceding profits to promote exports, and insufficient global effective refining capacity, with freight rates rising sharply to historically high ranges. In 2026Q3, the average freight rate on the VLCC Oman route was US$175,000/day, up 394% year-on-year and up 7.4% quarter-on-quarter (year-on-year and quarter-on-quarter growth rates are calculated based on the Middle East and Red Sea routes as the base period, respectively); the average freight rates on the US Gulf and West Africa routes were US$123,000 and US$128,000/day, up 253% and 250% year-on-year, and up 1.1% and 1.8% quarter-on-quarter (considering that revenue recognition freight rates lag by one month, i.e., corresponding to June-August freight rates). In Q3, Middle East crude oil shipments increased with the rise in STS transfer volumes, and Atlantic China Welding Consumables, Inc. shipments also grew; combined with further tension in the Red Sea situation, this pushed VLCC freight rates to climb steadily and slightly. Chart 1: Crude oil tanker daily earnings TCE index ($/day) Source: Clarksons, Huachuang Securities Chart 2: VLCC-TCE by route ($/day) Source: Clarksons, Huachuang Securities Freight rate increases for small and medium-sized crude oil tankers and product tankers lagged behind VLCCs: In 2026Q3, the average freight rates for Suezmax, Aframax, and product tankers were US$166,000, US$83,000, and US$30,000/day, respectively, up 242%, 116%, and 31% year-on-year, and down 21%, 47%, and 53% quarter-on-quarter. (Considering that revenue recognition freight rates lag by one month.) In 26Q3, the average MR TC7 TCE was US$29,000/day, up 31.9% year-on-year and down 14.7% quarter-on-quarter (considering that revenue recognition freight rates lag by two weeks); specifically, MR market freight rates in July and August fell back from Q2, while freight rates rose rapidly in September and hit a new high for the year. The high freight rate range fell only to a limited extent in Q3, and more so in Q4. Chart 3: Product tanker daily earnings TCE index ($/day) Source: Clarksons, Huachuang Securities Chart 4: Product tanker TC7, TC11-TCE index ($/day) Source: Clarksons, Huachuang Securities Performance Net profit attributable to parent for the first three quarters of 2026: China Merchants Energy Shipping RMB12.0 billion, up 263% year-on-year; COSCO SHIPPING Energy Transportation RMB7.39 billion, up 172% year-on-year; Nanjing Tanker Corporation RMB1.14 billion, up 20.1% year-on-year. China Merchants Energy Shipping's oil tanker segment net profit was RMB9.93 billion, up 426% year-on-year; COSCO SHIPPING Energy Transportation's foreign trade oil shipping business gross profit was RMB8.03 billion, up 353% year-on-year, of which crude oil, product oil, and time charter gross profits were RMB6.56 billion, RMB640 million, and RMB880 million, respectively, up 570%, 51%, and 133% year-on-year. 2026Q3 net profit attributable to parent: China Merchants Energy Shipping RMB5.02 billion, up 327% year-on-year and up 19.7% quarter-on-quarter; COSCO SHIPPING Energy Transportation RMB2.84 billion, up 235% year-on-year and up 20% quarter-on-quarter; Nanjing Tanker Corporation RMB330 million, down 13.5% year-on-year and down 14.3% quarter-on-quarter. COSCO SHIPPING Energy Transportation's foreign trade oil shipping business gross profit was RMB3.41 billion, up 590% year-on-year and up 40.3% quarter-on-quarter; China Merchants Energy Shipping's oil tanker segment net profit was RMB3.745 billion, up 528% year-on-year and up 1% quarter-on-quarter. Overall, due to the strong performance on the freight rate side, the three oil tanker companies achieved high year-on-year growth in Q3 performance, with China Merchants Energy Shipping and COSCO SHIPPING Energy Transportation's single-quarter net profit attributable to parent hitting new historical highs again. China Merchants Energy Shipping, due to the sale of aging ro-ro vessels and the consolidation of Antong, recognized asset disposal gains of RMB230 million and investment income of RMB380 million, contributing the main increment to Q3 performance on a quarter-on-quarter basis. For COSCO SHIPPING Energy Transportation, as trapped vessels exited the gulf, the quarter-on-quarter growth in oil shipping business performance was more pronounced; at the same time, the Q3 income tax rate was relatively high at 24% (tax rates were 16-17% in 2024 and 2025, and about 19% in 26H1), causing net profit growth to be lower than gross profit. Nanjing Tanker Corporation's performance was weaker than the former two due to weak freight rates on the MR East route in July-August and cost pressure from domestic trade bunker fuel. Chart 6: China Merchants Energy Shipping and COSCO SHIPPING Energy Transportation quarterly net profit attributable to parent (RMB100 million) Source: Company announcements, Huachuang Securities Chart 7: Nanjing Tanker Corporation quarterly net profit attributable to parent (RMB100 million) Source: Company announcements, Huachuang Securities Chart 8: China Merchants Energy Shipping oil tanker segment net profit (RMB100 million) Source: Company announcements, Wind, Huachuang Securities Chart 9: COSCO SHIPPING Energy Transportation foreign trade oil shipping business gross profit (RMB100 million) Source: Company announcements, Huachuang Securities Outlook In September, Middle East oil export volumes gradually recovered; high cracking spreads drove oil traders' stocking and transportation willingness; combined with factors such as route diversion and STS transfer modes consuming effective capacity, freight rates climbed rapidly and remained at high levels. From September to date, the average freight rates on the VLCC Oman, US Gulf, and West Africa routes were US$720,000, US$420,000, and US$530,000/day, respectively; from mid-September to date, the average freight rate on the MR TC7 route was about US$65,000/day. Q4 performance is also expected to grow substantially. We continue to be bullish on the prosperity of the oil tanker industry: In the short term, the core contradiction between the substantial depletion of global oil inventories and the export demand of upstream oil-producing countries remains unchanged; combined with high cracking spreads driving refinery import demand, and against the backdrop of continued geopolitical risks, dark voyages and route diversions cause efficiency losses, bottlenecks in the crude oil transportation segment are prominent, and the trend of a rising freight rate center is clear. In the medium to long term, restocking + the potential shift of Iranian oil to the compliant market + capacity expansion and import diversification constitute the three major increments on the demand side; on the supply side, the elimination of aging capacity is expected to offset new vessel deliveries, and Sinokor's sweeping purchases of VLCCs are a market structural logic that cannot be ignored. Dry Bulk: Q3 prosperity running high, performance continues to grow rapidly year-on-year Market Review In 2026Q3, the dry bulk shipping market continued to remain at a high level, with the BDI averaging 3,041 points, up 54% year-on-year and up 11% quarter-on-quarter. By vessel type, Capesize vessels continued to be supported by long-haul demand for iron ore and bauxite, surging at the beginning of the quarter before falling back; Panamax vessels, affected by strong grain demand and typhoon disruptions, maintained relatively high-level fluctuations; Handysize vessels continued to rise after consolidation. Chart 10: Baltic Dry Index (BDI) Source: Wind, Huachuang Securities Chart 11: Capesize Freight Index (BCI) Source: Wind, Huachuang Securities Chart 12: Panamax Freight Index (BPI) Source: Wind, Huachuang Securities Chart 13: Supramax Freight Index (BSI) Source: Wind, Huachuang Securities Performance First three quarters of 2026: Fujian Highton Development net profit attributable to parent RMB820 million, up 224% year-on-year; China Merchants Energy Shipping dry bulk business net profit RMB1.84 billion, up 158% year-on-year. 2026Q3: Fujian Highton Development net profit attributable to parent RMB295 million, up 78% year-on-year and down 5.7% quarter-on-quarter; China Merchants Energy Shipping dry bulk business net profit RMB660 million, up 127% year-on-year and down 11% quarter-on-quarter. The Pacific Shipping's 26Q3 Handysize and Supramax dry bulk vessel TCEs were US$16,000 and US$18,000/day, respectively, up 37% and 34% year-on-year, and down 1.2% and 5.7% quarter-on-quarter, with excess returns of 9% and -2%, respectively; the reason why Supramax dry bulk vessels underperformed the index in Q3 is that Atlantic China Welding Consumables, Inc. and The Pacific freight rates had cross-ocean spreads, and the company proactively arranged vessels for reverse voyages, deploying vessels to the high-freight Atlantic China Welding Consumables, Inc. region, sacrificing short-term spot returns in Q3 to secure positions in advance and lay out for the traditional peak season Q4 Atlantic China Welding Consumables, Inc. market. Overall, in 2026Q3, dry bulk freight rates continued to remain high, and dry bulk companies' performance continued to grow rapidly year-on-year, while quarter-on-quarter growth slowed, which is speculated to be possibly due to settlement timing mismatches on some voyages, or more pronounced excess returns in Q2. Chart 14: China Merchants Energy Shipping dry bulk business and Fujian Highton Development quarterly net profit (RMB100 million) Source: Company announcements, Wind, Huachuang Securities Chart 15: The Pacific Shipping Handysize and Supramax dry bulk vessel quarterly TCE (US$/day) Outlook Since late September, the BDI has continued to decline due to contraction in iron ore shipments, with Capesize vessel freight rates falling back more noticeably, while Supramax vessel freight rates have remained firm, reflecting that demand for minor bulk cargoes remains relatively stable; the BDI correction has stabilized in the short term from a trend perspective, and subsequently, from a seasonal perspective, mid-to-late November is expected to enter the year-end shipping peak season; at the same time, El Nio weather may catalyze peak-season freight rates. The World Meteorological Organization expects the El Nio phenomenon to continue strengthening and peak in December. We continue to be bullish on the upward potential of the dry bulk market: 1) Supply-side growth is limited; Clarksons estimates industry capacity growth for 2026-2028 at 3.9%, 4.3%, and 4.1%, respectively; against the backdrop of tightening environmental policies, dry bulk vessel speeds continue to decline, and the increase in the number of vessels undergoing special surveys affects effective capacity. 2) The commissioning of the Simandou iron ore project constitutes a core catalyst; Simandou is a super iron ore project with deep participation by Chinese enterprises and is expected to break the existing pattern of iron ore supply dominated by Australia and Brazil. At the end of 2025, the Simandou iron ore project was officially commissioned; its shipping distance to China is three times that from Australia. If it substitutes for Australian imports, reaching full production by 2030 could cumulatively drive global iron ore seaborne demand by 9.4%. Container Shipping: Q3 freight rates continued to rise, performance growth impressive Market Review Foreign trade container shipping market: European and American demand showed resilience, and combined with factors including the Middle East conflict, port congestion, and falling water levels in the Panama Canal, Q3 container shipping freight rates continued to rise. In 26Q3, the CCFI averaged 1,867 points, up 55% year-on-year and up 38% quarter-on-quarter. Different routes showed divergence: 1) Main routes: In 26Q3, the CCFI Europe and Mediterranean routes were up 36% and 47% year-on-year, and up 36% and 33% quarter-on-quarter; the US West and US East routes were up 85% and 72% year-on-year, and up 58% and 60% quarter-on-quarter, i.e., US routes performed better than Europe and Mediterranean routes on both a year-on-year and quarter-on-quarter basis. 2) Feeder market: In 26Q3, the CCFI Southeast Asia route was up 29% year-on-year and up 8% quarter-on-quarter, underperforming main routes. 3) Emerging markets: In 26Q3, the CCFI Persian Gulf-Red Sea and South America routes were up 167% and 67% year-on-year, and up 50% and 62% quarter-on-quarter; the Persian Gulf-Red Sea route had the most significant geopolitical premium, hence its increase ranked first among all routes; the South America route, affected by expectations of Brazilian tariff adjustments, cargo owners' early shipments, and port congestion, also saw impressive freight rate gains. Chart 17: CCFI index performance Source: Wind, Huachuang Securities Chart 18: CCFI main route freight rate index Source: Wind, Huachuang Securities Chart 19: CCFI intra-Asia route freight rate index Source: Wind, Huachuang Securities Chart 20: CCFI emerging regional route freight rate index Source: Wind, Huachuang Securities Foreign trade time charter market: feeder vessel period charter rates rose steadily. In 26Q3, the 6-12 month time charter rates for 4,250 TEU and 2,500 TEU container ships were US$63,000 and US$38,000/day, respectively, up 18% and 8.6% year-on-year. Domestic trade container shipping market freight rates fell back; in 26Q3, the PDCI averaged 968 points, down 9% year-on-year. Chart 21: PDCI index performance Source: Wind, Huachuang Securities Chart 22: 4,250/2,500 TEU container ship time charter rates (US$/day) Source: Wind, Huachuang Securities Performance Net profit attributable to parent for the first three quarters of 2026: COSCO SHIPPING Holdings RMB30.65 billion, up 13.2% year-on-year; Shanghai Jinjiang Shipping RMB1.23 billion, up 3.5% year-on-year; Shanghai Zhonggu Logistics RMB1.93 billion, up 36.7% year-on-year; China Merchants Energy Shipping container shipping segment net profit RMB1.56 billion, up 50% year-on-year. 2026Q3 net profit attributable to parent: COSCO SHIPPING Holdings RMB17.23 billion, up 80.7% year-on-year and up 128.5% quarter-on-quarter; Shanghai Jinjiang Shipping RMB480 million, up 21.8% year-on-year and up 14.2% quarter-on-quarter; Shanghai Zhonggu Logistics RMB850 million, up 149% year-on-year and up 52% quarter-on-quarter; China Merchants Energy Shipping container shipping segment net profit RMB980 million, up 138% year-on-year and up 198% quarter-on-quarter. Consistent with freight rate trends, COSCO SHIPPING Holdings benefited from rising main route freight rates, and its Q3 performance exceeded expectations; Shanghai Jinjiang Shipping, operating in the intra-Asia market, saw Q3 freight rate increases weaker than main routes, so its performance growth was weaker than COSCO SHIPPING Holdings; Shanghai Zhonggu Logistics contributed performance increments through its layout on Middle East/Red Sea routes; China Merchants Energy Shipping's consolidation of Antong enhanced the profitability of its container shipping business. Outlook Clarksons estimates that in 2026, the container shipping market supply-side growth rate will be 4.7% and demand-side growth rate 4.2%. At the same time, considering the disruptive effects of factors such as the Middle East conflict, tariff policies, and port congestion on the existing route network, we expect the container shipping market to be in a state of tight supply-demand balance overall this year; we expect Q4 freight rates to remain at relatively high levels, and continue to be bullish on upward revisions to container shipping companies' second-half earnings, with dividend yields attractive. Specialized Shipping: Automobile and wind power export prosperity continues, COSCO SHIPPING Specialized Carriers Q3 profit continues to rise In the first three quarters, China's goods trade exports grew 16% year-on-year, showing a high-prosperity situation; the equipment manufacturing industry contributed nearly 90% of the export increment, with electric vehicles, lithium batteries, wind power generating sets and their parts and other green products growing 72.3%, 36.4%, and 22.4%, respectively. In 2026Q3, China exported 3.11 million automobiles, up 69% year-on-year and up 8.3% quarter-on-quarter. Benefiting from this, in 2026Q3, the average 1-year time charter rate for 6,500-berth ro-ro vessels was US$87,000/day, up 93% year-on-year and up 36.8% quarter-on-quarter; in 2026Q3, the average MPP market freight rate was US$21,000/day, basically flat year-on-year and quarter-on-quarter. Chart 24: China automobile export volume (10,000 vehicles) Source: Wind, Huachuang Securities Chart 25: 6,500-berth ro-ro vessel 6-12 month time charter rates (US$/day) Source: Wind, Huachuang Securities COSCO SHIPPING Specialized Carriers 2026 first three quarters revenue RMB22.6 billion, up 36% year-on-year; net profit attributable to parent RMB2.62 billion, up 97% year-on-year. 2026Q3 revenue RMB8.19 billion, up 40% year-on-year and up 3.7% quarter-on-quarter; net profit attributable to parent RMB1.25 billion, up 147% year-on-year and up 29% quarter-on-quarter. The company's automobile, wind power, and engineering equipment cargo volume proportions rose to 21%, 9%, and 8%, totaling 38%, and it is expected to continue benefiting from the energy transition and the dividends of Chinese manufacturing going global. Chart 26: COSCO SHIPPING Specialized Carriers quarterly profit (RMB100 million) Source: Wind, Huachuang Securities Investment Recommendations: Continue to be bullish on upward opportunities across all vessel types 1. Oil Tanker: Bullish on the arrival of a major cycle In the short term, the core contradiction between the substantial depletion of global oil inventories and the export demand of upstream oil-producing countries remains unchanged; combined with high cracking spreads driving refinery import demand, and against the backdrop of continued geopolitical risks, dark voyages and route diversions cause efficiency losses, bottlenecks in the crude oil transportation segment are prominent, and the trend of a rising freight rate center is clear. In the medium to long term, restocking + the shift of Iranian oil to the compliant market + capacity expansion and import diversification constitute the three major increments on the demand side; on the supply side, the elimination of aging capacity is expected to offset new vessel deliveries, and Sinokor's sweeping purchases of VLCCs are a market structural logic that cannot be ignored. Continue to strongly recommend China Merchants Energy Shipping and COSCO SHIPPING Energy Transportation, and be bullish on Nanjing Tanker Corporation. 2. Dry Bulk: Freight rates running strong, bullish on upward potential Supply growth is limited, with dry bulk vessel orderbook at about 16%, the lowest among the three major shipping industries; on the demand side, Simandou's commissioning lengthens shipping distances, and subsequent El Nio weather may catalyze peak-season freight rates. Recommend China Merchants Energy Shipping, Fujian Highton Development, and The Pacific Shipping. 3. Container Shipping: Second-half earnings expected to accelerate upward, dividend yields attractive Container shipping supply and demand are expected to maintain a tight balance during the year; we expect Q4 freight rates to remain at relatively high levels, and continue to be bullish on upward revisions to container shipping companies' second-half earnings, with dividend yields attractive. Recommend COSCO SHIPPING Holdings, Shanghai Jinjiang Shipping, and Shanghai Zhonggu Logistics; suggest paying attention to SITC and TS LINES. 4. Specialized Shipping: Bullish on the high prosperity of China's automobile exports and offshore wind power construction demand; focus on recommending COSCO SHIPPING Specialized Carriers Risk Warnings Sharp decline in spot freight rates, demand falling short of expectations, impact of geopolitical events, etc.