SDIC Securities: The security situation in the Red Sea is tense, and there is an upward risk in shipping freight rates

Zhitong Financial APP learned that SDIC Securities issued a research report saying that last week (12.10-12.16) the Shanghai Composite Index was -0.91% month-on-month compared with the previous week, and the A-share transportation index was -0.92% month-on-month compared with the previous week, underperforming the Shanghai Composite Index by 0.01pct. Among the companies that focused on last week, China Grain Flow, Debang Shares, COSCO Shipping Holdings, and Huamao Logistics were among the top gainers. SDIC Securities recommends focusing on portfolios: Changjiu Logistics, SF Holdings, Debang Shares, Spring Airlines, Air China, China Merchants Shipping, COSCO Shipping Energy, China Merchants Nanyou, and YTO Express.

In terms of sub-industries, express logistics: pay attention to the differentiation of e-commerce express delivery, be optimistic about the performance resilience and valuation cost performance of leading CR2 enterprises, and pay attention to the increase in the share of Shentong. In the environment of weak economic recovery, the demand resilience of the express delivery industry is highlighted. However, at the same time, due to the overcapacity of the head express delivery companies and the change of competition strategies, the price competition has unexpectedly intensified this year, and the industry price has fallen to a low level again. In this competitive environment, the bank is optimistic about the leading Hengqiang, with the support of a stable franchise network and operational strength, it is expected to effectively expand its share, promote the scale effect and management effect to fully reduce costs, bring performance resilience, and be optimistic about the valuation and cost performance of the current CR2 leading enterprises in the industry! Focus on the company: Zhongtong Express, YTO Express, SF Holdings, Debang Shares, Shentong Express, Yunda Shares.

Oil transportation: short-term disturbances do not change the logic of the oil transportation boom cycle, and we are firmly optimistic about the investment opportunities of related companies. Saudi Arabia and Russia production cuts, Russian oil prices exceed the price limit and other events belong to the rhythm disturbance of the demand side, which does not change the logic of the prosperity brought by the supply side of oil tankers. The fundamentals of the post-epidemic demand recovery, the elongation of the transportation distance brought about by the change of trade pattern, the very little capacity to be delivered, the serious aging of the existing transportation capacity, and the low willingness of shipowners to build ships still have strong certainty, and we are firmly optimistic about the investment opportunities in the oil tanker sector. Focus on the company: China Merchants South Oil, COSCO Shipping Energy, China Merchants Shipping.

Aviation: The performance of airlines has improved significantly in Q3, focusing on the recovery of international routes, and in the medium term, we are optimistic about the performance resilience of airlines under the improvement of the industry competition pattern and the continuous realization of supply and demand logic. In this round of aviation cycle, the low-speed growth of industry supply has a high degree of certainty, and the further liberalization of inbound and outbound tourism is superimposed on the increase in direct flights between China and the United States, and the recovery pace of international routes is expected to accelerate. In addition, the competition pattern of the industry continues to improve, the marketization of fares is gradually advancing, and we are optimistic about the increase in full fares and the contraction of discount rates, and the performance elasticity of the post-epidemic recovery aviation sector is highlighted. Focus on companies: Spring Airlines, Juneyao Airlines, Air China, China Southern Airlines, China Eastern Airlines.

Airports: The recovery momentum of international passenger traffic is strong, and we are optimistic about the long-term value of leading airports. 1) The recovery momentum of international flight traffic after the change of the flight season is strong, the resumption of routes negotiated with many countries is gradually landing, and multiple factors such as the decline in international flight fares are conducive to the rapid recovery of international passenger flow2) The recent recovery progress of domestic routes has preliminarily verified the post-epidemic consumption elasticity, and in the long run, airport operations still have strong location barriers, aviation business is stable, and duty-free and tax-free business prospects are broad. Focus on companies: Shanghai Airport, Baiyun Airport.

The main views of SDIC Securities are as follows:

Industry Dynamics Tracking:

Express logistics: (1) The growth rate of express business volume in November was 31.9%, maintaining resilient growth. According to the data of the State Post Bureau, the express delivery business volume in November was 13.64 billion pieces, a year-on-year increase of 31.9%, and the express business revenue was 124.14 billion yuan, a year-on-year increase of 26.9%. The bank assumes that the industry growth rate in December is about 25%, and the corresponding industry growth rate is +19% for the whole year, and the two-year CAGR is +10.3%, which is optimistic that the demand for express delivery will continue to grow resiliently.

(2) The National Development and Reform Commission (NDRC) is open to the public to solicit opinions on the "Data Element ×" Three-Year Action Plan, and the logistics industry will benefit. On December 15, the National Development and Reform Commission (NDRC) released the draft of the Three-Year Action Plan for Data Element × (2024-2026). The opinions put forward that by the end of 2026, the breadth and depth of application scenarios of data elements will be greatly expanded, the multiplier effect of data elements in the field of economic development will be revealed, the average annual growth rate of the data industry will exceed 20%, the scale of data transactions will increase by 1 times, and more than 300 typical application scenarios with strong demonstration, high visibility and wide driving force will be created, which will focus on data elements x transportation (Article 7).

(3) Cross-border e-commerce logistics service provider Fanyuan International is expected to be listed on December 22. Fanyuan International, which is mainly engaged in the provision of end-to-end cross-border logistics services, intends to offer 140 million shares globally, including 14 million shares in the public offering, 126 million shares in the placement and 15% over-allotment option. The IPO will run from 12 December to 19 December 2023, with an expected pricing date of 20 December, and the offer price will be HK$0.90-1.22 per offer share, with board lots of 4,000 shares. The shares are expected to be listed on the Main Board of the Stock Exchange on 22 December 2023.

Aviation airports: (1) Aviation off-season operated smoothly, the number of domestic flights decreased month-on-month last week, and the recovery trend of international flights was firm. In the past week (12.9-12.15), the average daily passenger flight volume reached 12,406 flights, -5.1% month-on-month, and recovered to 89.8% in 2019. The average daily domestic flight volume reached 10,868 flights, -6.0% month-on-month, recovering to 97.0% of 2019 levels, and the average daily flight volume of international & regional flights reached 1,537 flights, +1.9% month-on-month, recovering to 58.7% of 2019.

(2) Avolon, an aircraft lessor, announced an order for 140 aircraft. Avolon Aerospace Leasing Limited, a wholly owned subsidiary of Bohai Leasing, announced an order for 100 A321neo aircraft with a total value of approximately US$13 billion from Airbus and 40 737 MAX aircraft with a total value of approximately US$18 billion from Boeing, which are expected to be delivered between 2028 and 2030.

(3) The supply and demand of airlines in the off-season fell month-on-month, and the overall load factor of private airlines exceeded the same period in 2019. In November, the combined ASK/RPK of the three major airlines recovered to 93%/88% of the same period in 2019, respectively, and the proportion of supply and demand recovery both declined month-on-month, with the load factor of 76.2% and -2.2% month-on-month. Among the three major airlines, China Southern Airlines maintained a leading position in terms of overall passenger load factor and demand recovery rate in October. In November, the performance of domestic flights in the Spring and Autumn Period continued to outperform its peers, with the overall RPK and ASK +45.3% and +48.2% respectively compared with the same period in 2019, and the overall passenger load factor +2.0pct compared with the same period in 2019, while the overall RPK and ASK of Jixiang were +11.4% and +11.3% respectively compared with the same period in 2019, and the overall recovery continued to lead the peers, with the overall passenger load factor +0.1pct compared with the same period in 2019.

Shipping: (1) The maritime security situation in the Red Sea region is tense, and there is an upside risk in freight rates. Last week, affected by the Houthi attack, Maersk, Hapag-Lloyd, CMA CGM, and MSC all announced that their container ships would suspend the passage of their container ships through the Red Sea. The impact of the outage has not yet been extended to tankers, but the Norwegian-flagged tanker has also been attacked by the Houthi forces in Yemen, increasing the likelihood of a detour. As an important channel for freight and oil transportation, the Suez Canal will drive a significant increase in freight rates if a large number of shipping companies announce a detour, increase transportation costs and reduce effective capacity. Taking consolidation as an example, if all the detours around the Cape of Good Hope, it will increase the voyage by 10-11 days, and the longer the detour means the cost increases. However, the bank also needs to pay attention to the duration of this incident, and if the threat is lifted sooner, the industry will return to fundamentals.

(2) Last week, the freight rate of TD3C ship type declined, and the freight rate of Suez and Afra ship type fell slightly. On December 14, the BDTI TD3C freight rate was 35,716 US dollars / day, compared with last week - 13,021 US dollars / day, the Suez ship type freight rate was 49,394 US dollars / day, compared with last week - 3977 US dollars / day, and the Afra ship freight rate was 36,536 US dollars / day, compared with last week - 2672 US dollars / day. The overall decline in crude oil freight rates was affected by the short-term decline in regional demand.

(3) Last week, BCTI TC7 and Pacific basket freight rates maintained an upward trend, and Atlantic basket refined oil freight rates continued to fall. On December 14, the BCTI TC7 freight rate was $26,425/day, +$1,866/day compared with last week, the Pacific basket freight rate was $29,396/day, +$2,127/day compared with last week, and the Atlantic basket freight rate was $48,387/day, -$9,852/day compared with last week. The high freight rate of the Atlantic basket of refined oil products is gradually transmitted to the Pacific freight rate, and the market supply and demand are rematched, and the Pacific freight rate is optimistic that the Pacific freight rate will continue to rise.

(4) The BDI index was relatively stable after a significant retreat last week, and all ship freight indices fell. On December 15, the BDI fell to 2348 points, -5.44% from the previous week. Affected by the weakening macro demand, the BDI index may continue to decline in the short term.

(5) The freight rate of foreign trade container transportation continued to rise, and the freight rate of domestic trade container transportation fell slightly. On December 15, the SCFI index was 1093.52 points, +5.94% month-on-month, and from December 02 to December 08, the PDCI index was 1199 points, -1.80% month-on-month. Container shipping has entered the traditional peak season, and at the same time, shipowners have supported long-term agreement freight rates, and export container freight rates have continued to rise. Domestic trade freight rates were dragged down by weak domestic demand and remained low.

Risk Warning: 1) The risk of macroeconomic downturn will have a greater impact on the overall demand for transportation. 2) The price competition in the express delivery industry exceeds market expectations. 3) The risk of rising oil prices and labor costs. As the main cost of the transportation industry, transportation and labor costs may face the risk of rising oil prices and rising labor costs.