(Report Producer/Analyst: Yu Nengfei, Debang Securities)
1. CIMC: a global container leader and a world champion in a number of businesses
1.1. The company has a long history and strong global strength
Founded in Shenzhen in January 1980 as a joint venture between China Merchants and Danish Baolong & Co., CIMC is the world's leading supplier of logistics equipment and energy equipment. The company was listed on the Shenzhen Stock Exchange in 1994 and the Hong Kong Stock Exchange in December 2012, and is currently an A+H share public listed company, with Shenzhen Capital Operation Group and China Merchants Group as its main shareholders.
CIMC has a long history, has been listed for nearly 30 years, and is rooted in international genes. China International Marine Containers (Group) Co., Ltd., formerly known as China International Marine Containers Co., Ltd., is a Sino-foreign joint venture jointly funded by China Merchants Shipping Co., Ltd., Denmark's Baolong & Co., Ltd., and American Ocean Container Company.
On December 19, 2012, the Company's domestically listed foreign shares (B shares) were converted to the place of listing, listed on the main board of The Stock Exchange of Hong Kong Limited and listed for trading, and all the B shares originally issued by the Company were converted into overseas listed foreign shares (H shares).
The company is committed to the layout of globalization, with production bases in Asia, Europe, North America and Australia, and its business network covers major countries and regions around the world, with customers and sales networks in more than 100 countries and regions around the world.
State-owned capital dominates, and the shareholding structure of mixed-ownership enterprises is balanced.
The two major shareholders are Shenzhen Capital Group and China Merchants Group. On October 12, 2020, COSCO SHIPPING Development Co., Ltd. and its subsidiaries signed a share transfer agreement with Shenzhen Capital Operation Group Co., Ltd. and its subsidiaries, and on December 18, 2020, the share transfer was completed. As of the third quarter of 2023, Shenzhen Capital Operation Group Co., Ltd. and its subsidiaries held a total of 29.74% equity interest in the Company, becoming the largest shareholder of the Company.
The second largest shareholder is China Merchants Group, which holds 24.49% of the issued shares of the Company through its subsidiary, China Merchants International (CIMC) Investment Co., Ltd. Apart from the above two, no other legal person or individual holds 10% or more of the total issued shares of the company.
Mr. Mai Boliang, the chairman of the company, has served in the company for 30 years and led the company to achieve steady growth.
In 1993, Mai Boliang was formally appointed as the general manager of the Company, and has been the President of the Company since 7 March 1994 and an Executive Director of the Company since 8 March 1994. He has been an Executive Director, CEO and President of the Company since August 27, 2015, the Chairman, Executive Director and CEO of the Company since August 27, 2020, and is currently the Chairman and a Non-executive Director of CIMC Vehicles Co., Ltd.
Under his leadership, the company's business has extended to road transport vehicles, energy, chemical and food equipment, marine engineering and other business fields, and has successively achieved the world's first place in containers, vehicles, boarding bridges and other fields. On December 28, 2004, President Mai Boliang was elected as "2004 CCTV China Economic Person of the Year".
1.2. Clear strategic goals and diversified business development
The company is deeply engaged in container manufacturing business and related incubation industries, and its industrial clusters mainly cover the logistics field and the energy field. The company's core business is shipping containers, incubating road transport vehicle business, airport and logistics equipment/fire and rescue equipment business, supplemented by logistics service business and recycling vehicle business to provide products and services in the logistics professional field; in the energy industry, the company mainly from the energy/chemical/liquid food equipment business, marine engineering business; at the same time, the company continues to develop emerging industries and has its own financial and asset management business. Among them, the container industry continues to maintain its leading position in the global industry, and road transport vehicles, energy/chemical/liquid food equipment and offshore business have also formed strong competitiveness.
In 2001, the company determined the mission of "providing equipment and services for modern transportation", that is, from the perspective of global vision, establish and develop three levels of business in parallel: the first level is the core business - container business, the second level is the van semi-trailer business, which is gradually adjusted to the road transport vehicle business, and the third level is the vitality business involved in the modern transportation equipment and service industry in a broader form. There is a clear development line in different business areas.
Mergers and acquisitions expanded, and business diversification. In 1993, CIMC implemented the cross-regional M&A strategy for the first time, acquiring 51.18% of the equity of Dalian Container Industry and establishing its first production base outside Shenzhen in the north. Since then, mergers and acquisitions have also become the main way for CIMC to expand strategically.
1.2.1. Container business - CIMC Containers
The company is a leader in the global container industry and has the largest market share in the world. In 1996, the company's container production and sales reached 199,000 TEUs, becoming the world's largest dry cargo container manufacturer and establishing a leading position in the market. Since then, the position of the industry has been continuously consolidated. On September 29, 1996, Shanghai CIMC Refrigerated Container Co., Ltd. was officially put into production. The introduction of the world's advanced German refrigerator manufacturing technology, product varieties from a single to a series of changes.
In 23 years, the growth rate of global merchandise trade remained low, and the demand for containers bottomed out. In 2022, due to the slowdown in the overall demand for containers, superimposed on the impact of factors such as the decline in raw material prices, the price and sales volume of new containers decreased throughout the year, and the revenue/gross profit margin was 435.33 million yuan/22.20%. Container sales and revenue trends are basically the same. In 2022, the sales volume of refrigerated containers/dry cargo containers will be 12.33/1.0809 million units.
In the first three quarters of 2023, the cumulative sales volume of standard dry cargo containers was 476,500 TEU, a year-on-year increase of -52.90%, and the cumulative sales volume of refrigerated containers was 80,100 TEU, a year-on-year increase of -20.54%. In terms of the quarter-on-quarter comparison, the cumulative sales volume of standard dry cargo containers in the third quarter was about 213,000 TEU, an increase of 159% and 18% compared with the first quarter and the second quarter, respectively, and the cumulative sales volume of refrigerated containers in the third quarter was about 28,700 TEU, an increase of 138% compared with the first quarter and a decrease of 27% compared with the second quarter.
1.2.2. Road transport vehicle business - CIMC Vehicles
CIMC Vehicles Co., Ltd. began manufacturing and selling semi-trailers in 2002, and since 2013, the company has maintained the world's largest semi-trailer production for ten consecutive years.
On April 16, 2002, the "CIMC Semi-trailer/Van-Semi-Trailer Product Launch" was held in Shekou, Shenzhen. The holding of the press conference marked the official launch of the company's road transport vehicle business, the second level of business of "providing equipment and services for modern transportation".
Through mergers and acquisitions, investment and new construction, CIMC has successively acquired well-known enterprises in the industry such as Yangzhou Tonghua, Hpa Monon of the United States, Jinan Kaogel, Zhumadian Huajun, Zhangjiagang Shengdyne, Luoyang Lingyu and Wuhu Ruijiang, and established more than 20 production bases serving the global mainstream market. In 2006, CIMC ranked first in the world in terms of production and sales of road transport vehicles.
CIMC Vehicles is the main body of the company's road transport vehicle business. As of June 2023, CIMC holds a 36.1% stake in CIMC Vehicles. Since the company entered the industry in 2002, it has formed business advantages and technical advantages around "focus and innovation". According to the data released by Global Trailer in 2023, the world's top 50 semi-trailer manufacturers ranked first by production volume, and the company has been ranked first in the world for 11 consecutive years. In July 2019, CIMC Vehicles (01839.HK) was successfully listed on the Main Board of the Hong Kong Stock Exchange. In July 2021, CIMC Vehicles (301039.SZ) officially landed on the Growth Enterprise Market of the Shenzhen Stock Exchange, achieving A+H dual listing.
According to the actual operation and strategic management needs, CIMC Vehicles has established six major businesses or groups: "Lighthouse Pioneer Business", "North American Business", "European Business", "Qiangguan Business Group", "City Muck Truck Business" and "Terabyte Business Group", aiming to break the business silos, realize the linkage between production and marketing and maximize benefits. It has 23 "lighthouse" factories around the world and a sales network covering more than 40 countries.
The strategy of "transoceanic operation and local manufacturing" has been implemented with high quality, and overseas performance has continued to be realized. In the first three quarters of 2023, CIMC Vehicles continued to consolidate its main business and give full play to its transoceanic operating advantages, maintaining a year-on-year growth trend in the first three quarters, achieving operating income of RMB19.568 billion, a year-on-year increase of 12.42%, and net profit attributable to shareholders of CIMC Vehicles of RMB2.277 billion, a year-on-year increase of 244.64%, with a total of 116,273 units of various vehicles sold worldwide.
1.2.3. Energy, Chemicals & Liquid Food Business Segment – CIMC ENRIC
Founded in 2004, CIMC ENRIC is one of the leading professional gas equipment manufacturers in China and a comprehensive business solution provider for the gas energy industry. As of December 31, 2022, the Group held approximately 67.59% of the equity of CIMC ENRIC. On July 30, 2007, CIMC entered into a merger and acquisition agreement with ENRIC Energy Equipment Holdings Co., Ltd. The company was listed on the Growth Enterprise Market of the Hong Kong Stock Exchange in 2005 and transferred to the Main Board in 2006. CIMC ENRIC is mainly engaged in the design, development, manufacturing, engineering, sales and operation of various types of transportation, storage and processing equipment widely used in the energy, chemical and liquid food equipment industries.
In the first three quarters of 2023, the company's revenue achieved overall steady growth, benefiting from the continued recovery of natural gas consumption and LNG prices remaining in the normal range. 2023Q1-Q3 Enric's revenue was 16.637 billion yuan, +17% year-on-year. As of the end of September 2023, CIMC ENRIC's overall orders in hand reached a new high, amounting to approximately RMB22.156 billion, a year-on-year increase of 27.6%, with a cumulative total of RMB19.758 billion in the first three quarters, a year-on-year increase of 28.3%, and a significant increase of 61.5% year-on-year to approximately RMB13.230 billion in clean energy in the first three quarters.
1.2.4. Marine and Offshore Engineering Facilities Sector - Raffles City Yantai
Raffles City is a leading international ship and offshore facility builder, focusing on the construction of various types of drilling platforms and their supporting vessels. On March 12, 2008, CIMC acquired 29.9% of the shares of Yantai Raffles City and became the largest shareholder of the company. The acquisition of Yantai Raffles City marks CIMC's formal entry into the field of offshore oil and gas development equipment, i.e., the construction of special ships and offshore engineering.
In the first three quarters of 2023, the number of ship orders increased significantly year-on-year, and the operating income of the company's offshore engineering business was 6.733 billion yuan, +70.49% year-on-year, with a year-on-year decrease of 60.59% in the first three quarters and a quarter-on-quarter decrease of 29.71% in the third quarter. Among them, Yantai CIMC Raffles City Marine Technology Group Co., Ltd. has achieved profitability in the second and third quarters of 2023. In 2018, the gross profit margin of offshore engineering fell sharply to -10.33%, mainly due to the sharp decline in international oil prices since 2000, the global offshore industry is in a period of deep adjustment, and the offshore market is still under pressure in 2018, with limited new demand in the market.
1.2.5. Airport & Logistics Equipment, Fire & Rescue Equipment - CIMC Tianda
CIMC Tianda is committed to providing high-end and intelligent service equipment and solutions for cities around the world, making travel smoother, life safer and logistics faster.
As a large-scale international company, more than 5,000 employees around the world, more than 30 subordinate enterprises and business institutions are located in China, Singapore, Germany, France, the Netherlands, the United States, Indonesia, Australia and other countries and regions, and has formed a global R & D, production, marketing and service network.
In 2014, CIMC Tianda made a reverse acquisition of Singapore Deli International, in 2015, CIMC Tianda acquired a 30% stake in China Fire in exchange for shares, in 2018, Deli International injected into China Fire Protection, and in the same year, CIMC Tianda was listed on the Hong Kong Stock Exchange, and the original "China Fire Protection" was officially renamed as "CIMC Tianda". According to the official website of CIMC, after the reorganization, CIMC not only allows the airport business to obtain a more independent capital operation platform, but also controls China Fire Protection, which means that CIMC will hold a more complete fire truck product line, which can cover the demand for high-end products in China's fire protection market, and also enter the broader global market.
In the field of airport and logistics equipment, the passenger boarding bridge business ranks first in the world. At present, the products are sold in 81 countries, covering 380 airports, and more than 8,500 units have been delivered.
It has a market share of more than 90% in China and about 50% in Europe. With excellent performance and experience in the fields of airports, express e-commerce, home furnishing, energy and chemicals, and medicine, the overall strength of the business ranks at the leading level in China, and its subsidiary Deli International is a world-renowned airport baggage and logistics system integrator, and its aviation handling system ranks among the top three in the world.
It has 45 awards such as the Ministry of Industry and Information Technology's "Manufacturing Single Product Champion", "Jiangsu Province Star-level Cloud (Three-Star)", various provincial and ministerial science and technology progress awards, and the Ministry of Science and Technology's "All-weather High-precision Aircraft Berth Guidance System" and "Airport Automatic Logistics Processing System Industrialization Project" and other national scientific research projects.
In the first three quarters of 2023, CIMC Tianda's new orders increased year-on-year. The company's airport and logistics equipment, fire and rescue equipment business is developing at a high speed to "smart airport", "smart logistics" and "smart fire protection". In 2022, CIMC Airport & Logistics Equipment, Fire & Rescue Equipment achieved operating income of RMB6.672 billion, -2.49% year-on-year, and gross profit margin of 21.64%, +0.51% year-on-year.
1.3. The performance in the first three quarters of 2023 is under pressure and is expected to bottom out
The company's revenue CAGR from 2018 to 2022 is 10.92%. From Q1 to Q3 2023, the company achieved operating income of 95.124 billion yuan, a year-on-year increase of -12.84%. Among them, the performance of the road transport vehicle business in the first three quarters maintained a year-on-year growth trend, the logistics service business showed a positive trend in the third quarter, and the revenue of energy, chemical and liquid food businesses achieved overall steady growth.
The company's net profit attributable to the parent company from 2018 to 2022 CAGR is -1.21%. The net profit attributable to the parent company in Q1-Q3 2023 was RMB496 million, -84.10% year-on-year, and the basic earnings per share was RMB0.0830, -85.46% year-on-year.
The latest forecast of the WTO shows that the growth rate of global merchandise trade in 2023 will be 0.8%, but it is expected to achieve stronger trade growth in 2024, and the growth rate is expected to reach 3.3%, and the container manufacturing industry is expected to recover in the direction of normalcy in 2024.
The company's gross profit margin is stable as a whole, remaining at about 15%, but the net profit margin has declined significantly after 20 years. In the third quarter of 2023, the company's gross sales margin/net profit margin was 13.69%/1.53%, respectively, a year-on-year increase of -1.85pct/-2.31pct. The company's net profit margin on sales increased in 2020 to 6.38% in 2020, and gross profit margin on sales increased in 2021 to 18.03% in 2021, both of which declined.
The main reason is that the global economy and trade growth momentum will weaken due to high overseas inflation in 2022 and sharp interest rate hikes in Europe and the United States. Due to the slowdown in the overall demand for containers, coupled with the impact of factors such as the decline in raw material prices, the price and sales volume of new containers for the whole year fell compared with the historical high in 2021, but remained at a good level.
In the first three quarters of 2023, the company's US dollar floating interest expense increased due to the increase in US dollar loan rates, resulting in a year-on-year increase in financial expenses. The sales/management/R&D/financial expense ratios in 2023Q1-Q3 were 2.03%/4.66%/1.77%/0.85%, respectively, +0.34pct/-0.08pct/0.20pct/+1.41pct year-on-year. The year-on-year increase in financial expenses was mainly due to the year-on-year increase in interest expenses due to the increase in US dollar loan interest rates in the first three quarters, and the year-on-year decrease in foreign exchange gains due to US dollar exchange rate fluctuations.
2. Commodity inventories are bottoming out, and container demand is about to rebound
2.1. Global trade is expected to grow after the pandemic as global trade normalizes
Global supply chain pressures have dropped sharply after the highs of the pandemic. According to UNCTAD, after the pandemic, global demand for finished goods has surged, and global trade has gradually normalized. After 22 years, the epidemic in China has been liberalized, and the supply chain disruption between 2020 and 2022 has basically ended. In addition, sea freight rates soared to record highs after the outbreak of the pandemic, and until the second half of 2022, international ocean freight rates for containers and dry bulk fell sharply, which also reflects the normalization of global trade.
The growth rate of merchandise trade will be under pressure in 2023 and is expected to rebound in 24. According to the WTO, world trade in goods will grow by 0.8% in 2023, less than half of the 1.7% growth forecast in April. The growth rate is expected to reach 3.3% in 2024. Global real GDP will grow by 2.6% in 2023 and 2.5% in 2024 at market exchange rates.
In the first three quarters of 2023, U.S. goods consumption maintained year-on-year growth, and retailers' initiative to destock may come to an end. In the first three quarters, the per capita consumption of goods in the United States maintained a year-on-year growth, with year-on-year growth rates of 0.97%, 1.17% and 2.53% in the first, second and third quarters, respectively, but still lower than the average level of the decade before the epidemic.
The inventory ratios of U.S. manufacturers, retailers, and wholesalers fell to 1.46, 1.31, and 1.33 respectively (September), which was controlled, and retailers' initiative to destock may come to an end.
2.2. The recovery of global trade + the replenishment cycle is expected to drive the growth of container demand
After 21 years, overbought inventory is overstocked, and container sales are expected to become a record low in 23 years.
After 21 years, the efficiency of the supply chain has recovered, the backlog of overbought containers by customers, the digestion of the backlog of inventory in 22-23, and the weakening momentum of global economic and trade growth, so the demand for containers in 2023 will fall to the lowest point since the financial crisis.
The global container production in 2023H1 is 850,000 TEU, and the annual average from 2011 to 2022 (excluding 2021) is 3.25 million TEU, which has reached a historical low. From January to November 2023, China's container output was 76.19 million cubic meters, a year-on-year increase of -36%.
At present, the industry's inventory is steadily digesting, and the demand for containers is on the recovery track. According to Clarkson's forecast in July 2023, the growth rate of global container trade in 2023 and 2024 will be 1.0% and 3.4% respectively, and the expectation of container transportation demand in 2023 will turn from negative to positive, and the market is expected to show a significant upward trend in the future. It is expected that the steady recovery of global trade will provide strong support for the recovery of container demand in the future.
Container demand is closely related to global trade and inventory cycles. Generally speaking, economic growth drives trade growth, which leads to the growth of container volume, the increase in container demand, and the rise in container volume and price. The mainland is the world's largest container producer, accounting for more than 90% of the world's container production, so the study of China's container production is representative.
The upward trend of the inventory cycle is expected to drive container demand. The U.S. destocking cycle has lasted for more than a year, and in September 2023, the U.S. manufacturer and retailer databases increased by 0.1% and 5.47% year-on-year respectively, and the total inventory was +1.25% year-on-year.
In addition, the PPI, the leading indicator of finished goods inventories in China and the United States, has continued to narrow year-on-year since July 2023, and the growth rate of PPI in the United States has turned positive in September. In September 2023, the volume and price of containers will rise, and container production is expected to fluctuate upward in the future.
2.3. Container demand showed an upturn in the second half of 2023
The container index has basically returned to the pre-pandemic level. Container freight rates will show a downward trend in the first two quarters of 2023, and the spot freight rates on routes from July to August and early November will stabilize and rebound. The Drewry WCI Composite Index on December 7, 2023 was $1,461/piece (40-foot container), which is 3% higher than the average price of $1,420 in 2019 (pre-pandemic).
The average composite index on December 7, 2023 was $1,677 per 40-foot container, $995 lower than the 10-year average of $2,673. Drewry expects spot prices on the East-West Shipping Lane to remain generally close to current levels in December over the next few weeks.
The throughput of container ports is higher than the trough at the beginning of the year, and the number of imported containers in the United States has further recovered. Affected by the downturn in global merchandise trade, in the first 10 months of 2023, global container throughput fell by about 1.16% year-on-year. In September 2023, the month-on-month volume growth in most regions led to a 1.9% increase in the global container port throughput index to 112.0 points. The decline in October was -8.4% month-on-month and 3.4% year-on-year, and although there was a sharp decline in October, it was still higher than the trough at the beginning of the year. The number of imported containers in the United States recovered further in October 2023, reaching 2.3 million containers, +4.7% month-on-month, +3.9% year-on-year in 2022, and 11.4% higher than October 2019 (pre-pandemic).
2.4. With new trade + replacement of old containers, container demand is expected to return to normal in 2024
Historically, there has been a rebound in the year following the low point in container production. For example, 09 low, 10-year rebound, 16-year low, 17-year rebound. 2023 is a record low, and it is expected that there will be some increase from the 23-year low in 24.
Renewal demand: The container age is about 12-15 years, so it is estimated that most of the new containers sold around 2010 will reach the renewal and replacement period (2010-2012 container sales are about 3 million TEU). Therefore, 2024 is expected to start the container renewal and replacement cycle.
New demand: new demand for containers brought about by new container trade. According to the latest forecast of the WTO, by 2024, the global merchandise trade volume will increase by 3.3%, and the growth of trade is expected to drive a moderate recovery in new demand for containers.
As of the end of June 2023, the global container production is about 850,000 TEU, which is the lowest level in the past decade, and the new container sales are expected to recover to normal due to the update + new demand in 2024.
With container sales rising and prices stabilizing, the company will deeply benefit from the rebound in the container market cycle.
Sales volume: In terms of the single quarter, the company's new container sales showed a steady recovery trend, with the sales volume of standard dry cargo containers in the third quarter of 2023 being about 213,000 TEU, an increase of 159% and 18% in the first and second quarters respectively, and the cumulative sales volume of refrigerated containers in the third quarter was about 28,600 TEU, an increase of 136% compared with the first quarter and a decrease of 27% compared with the second quarter.
Price: The price of new orders for dry containers remains at around $2,200. As a leader in the container industry, the company's market share will remain at about 45% in 2022, and it is expected to deeply benefit from the market recovery.
3. The predicament of the offshore business reversed, and the transformation of the non-oil and gas business smoothed the fluctuation
3.1. Offshore oil investment picked up on the back of oil and gas prices
In the third quarter of 2023, natural gas and crude oil prices both rebounded. Under the combined effect of clean energy and the guarantee of energy security by various countries, the downstream demand for oil and gas will pick up in the second half of the year. OPEC will continue to cut production in 2023, and the EIA predicts that global crude oil is expected to enter a state of supply-demand balance from the fourth quarter of 23, and it can last until 24.
3.2. The offshore market has a significant recovery momentum, and the leasing market is highly active
At present, orders for various types of offshore equipment have recovered to varying degrees, and orders for floating production equipment are close to historical peaks. According to Clarkson's data, from January to September, a total of 92 offshore engineering equipment orders were traded worldwide, with a turnover of about 10.2 billion US dollars. From the perspective of specific ship types, offshore wind power-related ships and floating production equipment are the main forces in the current market transactions.
Specifically, there were 5 marine survey ships with a value of US$200 million, mobile drilling equipment was still zero transaction, but the downstream demand was very active, and ship leasing activities were increasing; 50 engineering construction ships were sold, with US$3.1 billion, including O&M mother ships, crane ships, wind power installation vessels, and cable-laying vessels related to offshore wind power construction and operation and maintenance; 13 floating production, storage and transportation equipment with US$6.4 billion; and 24 offshore engineering support vessels with US$400 million.
In the first three quarters of 2023, the revenue of the company's offshore engineering business was 6.73 billion yuan, a year-on-year increase of 70.49%, a year-on-year decrease of 60.59% in the first three quarters, and a quarter-on-quarter decrease of 29.71% in the third quarter. Among them, Yantai CIMC Raffles City Marine Technology Group Co., Ltd. has achieved profitability in the second and third quarters of this year.
In the first three quarters of 2023, new orders were signed: US$1.47 billion as of the end of September, a decrease of 36% from US$2.3 billion in the same period last year, mainly due to the lag in order time, and the cumulative value of orders in hand was US$5.2 billion, an increase of 38% compared with US$3.77 billion in the same period last year.
In terms of project construction and delivery in the first three quarters of 2023, the keel laying ceremony of the stern section of the P80 FPSO hull built for Petrobras was successfully held in July, the construction of the first large-scale wind power installation vessel built for Norway's Havfram Wind started in August, and the 22,000-ton multi-purpose engineering vessel H573 project was successfully launched and floated in September.
The company has the qualification of Petrobras FPSO general contractor, and the order value has increased significantly. The company has achieved a significant increase in the value of orders obtained by a single FPSO, and at the same time has obtained the general contracting qualification of Petrobra FPSO and the title of Petrobra's best supplier of the year. In 2022, CIMC Raffles signed two new FPSO hull orders, with a cumulative amount of US$1.3 billion. According to SBM Offshore's forecast, there will be an average of 11 new FPSO orders per year in 24-26 years.
In 2023, the offshore equipment leasing market will be very active. The Clarkson Offshore Market Index has reached 102.33, which has surpassed the level of the peak in 2014. The global average rental rate of jack-up rigs reached US$121,700/day, up 2.7% month-on-month and 13.8% year-on-year, and the average daily rent of floating rigs reached US$311,600/day, up 1.5% month-on-month and 19.9% year-on-year.
Most of the inventory rig orders have been leased, and the downstream equipment leasing demand is very active. As of the end of September 2023, CIMC Offshore Asset Operation and Management has involved a total of 16 offshore vessel assets, including: 2 ultra-deepwater semi-submersible drilling platforms, 3 semi-submersible drilling platforms in adverse sea conditions, 3 semi-submersible hoisting/life support platforms, 3 400-foot jack-up drilling platforms, 4 300-foot jack-up drilling platforms and 1 luxury yacht.
In the third quarter of 2023, the rise in oil prices during the period contributed to the recovery of market demand for drilling rigs. Among the Group's existing 16 offshore assets, 10 platforms have been leased, including 6 jack-up drilling platforms and 4 semi-submersible platforms (including 2 living platforms), and the remaining contract service period of the leases ranges from 6 to 70 months, including self-operated wet lease and dry lease mode.
3.3. Transform non-oil and gas businesses and successfully smooth oil and gas fluctuations
In addition to oil and gas offshore equipment, the company has also entered the fields of offshore wind power and special ships. In the first three quarters of 2023, the company's oil and gas and non-oil and gas business accounted for about 4:6 of the orders in hand, effectively smoothing out the fluctuations of the oil and gas cycle, and the strategic transformation was successful.
In the first three quarters of 2023, offshore wind power-related ships ushered in a "wave of deliveries", with 20 wind power installation vessels delivered alone, a record high. According to the statistics of the China Shipbuilding Industry Association, in terms of orders, as of the end of October 2023, there were 37 orders for offshore wind power installation vessels from shipyards around the world, of which 33 were manufactured by mainland shipyards. According to Clarkson's statistics, there are more than 30 shipyards in China that have built or modified offshore wind power installation ships (including ships under construction), including China Merchants Heavy Industries, CIMC Raffles, COSCO Shipping Heavy Industries, Jiangsu Dajin Heavy Industries, Shanghai Zhenhua Heavy Industries, etc.
The car carrier market is still running at a high level, and the demand for China's export cars has increased, driving the corresponding car carrier orders. As of the end of June 2023, the one-year rental rate of a 10-year-old 6,500-space car carrier has remained at a record high of US$80 million to US$90 million for six consecutive months.
In the first half of '23, China-to-global freight mileage increased by 19.8%, while PCTC orders slowed down, and there was a long-term gap in PCTC capacity. In the first half of the year, 34 PCTC orders with a total value of more than US$3.2 billion were 26% lower than the first half of 2022 in terms of vessel count. The average vessel size was 8,017 CEU, an increase of 5% compared to the first half of 2022.
In the field of car carrier construction, CIMC Raffles ranks fourth in the world in terms of hand-held orders. According to the international shipping network, in November, the Norwegian car carrier NOCC signed a contract with CIMC Raffles City for the construction of two 7,000-car LNG dual-fuel car carriers (PCTC), which will be delivered as early as 2025. As of November 2023, according to Clarksons, 16 of CIMC Raffles' current total 18 hand-held orders are LNG dual-fuel car carriers (excluding NOCC's orders), namely 10 7,000 parking spaces for Zodiac Maritime, 4 7,000 parking spaces for Atlas Maritime and two 6,500 car carriers for Wallenius Lines.
4. Earnings forecasts and relative valuations
4.1. Profit Forecasts
Key assumptions:
(1) Container business: the economic recovery and trade recovery will bring new demand, the 12-year replacement cycle will bring renewal demand, and the container demand is expected to bottom out in 24 years. It is expected that from 2023 to 2025, the revenue growth rate will be -55%/35%/30% respectively, the container price will be stable, and the gross profit margin will be 23.6%/23.7%/23.8%.
(2) Road transport vehicles: CIMC Vehicles is the world's leading high-end manufacturer of semi-trailers and special vehicles, and according to Global Trailer, the company has been ranked first among semi-trailer manufacturers for ten consecutive years. First of all, the recovery of the domestic economy and consumption has emerged, and the recovery trend of the domestic heavy truck industry is clear. Secondly, the supply and demand of the North American semi-trailer market have gradually returned to normal levels, the price of products in the European market has remained relatively high, and the demand for semi-trailers in emerging markets has remained strong. It is estimated that from 2023 to 2025, the revenue growth rate will be 10%/5%/5% respectively, and the gross profit margin will be 13.3%/13.4%/13.5%.
(3) Energy and chemical equipment business: CIMC ENRIC is the only key equipment manufacturer and engineering service provider in China that realizes the whole industrial layout around natural gas. Benefiting from the continuous recovery of natural gas consumption and the maintenance of LNG prices in the normal range, the company's demand for natural gas storage and transportation equipment has recovered. In addition, due to the widening of oil and gas price spreads, the LNG economy has become prominent, and the LNG heavy-duty truck market has grown explosively, driving the demand for CIMC ENRIC LNG vehicle cylinders and other terminal application equipment to rise significantly. It is expected that from 2023 to 2025, the revenue growth rate will be 13%/10%/5%, and the gross profit margin will be 18%/19%/20%.
(4) Logistics services: The continuous recovery of the mainland economy has driven the recovery of domestic logistics demand, and the "Belt and Road" cross-border railway has shown a growth trend. Focusing on the "Belt and Road" Pan-Asian Railway, the company actively builds demonstration projects such as road-rail intermodal integrated hubs, multimodal transport consolidation centers and bonded warehousing integrated logistics with various business formats, increases investment in Indonesia, Malaysia and Vietnam, and adds Indonesian route business. It is estimated that from 2023 to 2025, the revenue growth rate will be 5%/5%/5%, and the gross profit margin will be 5.4%/5.4%/5.4%.
(5) Offshore engineering: the recovery of the offshore market is picking up, FPSO orders + offshore platform operation is expected to bring high growth, and the non-oil and gas business smooths oil and gas fluctuations, and the demand gap for wind power ships and PCTC ships is large, and the company is expected to benefit. It is expected that from 2023 to 2025, the revenue growth rate will be 40%/20%/15%, and the gross profit margin will be 8%/8.5%/9%.
(6) Airport equipment business: It is expected that from 2023 to 2025, the revenue growth rate will be 3%/3%/3% respectively, and the gross profit margin will be 21.6%/21.6%/21.6%.
(7) Circular vehicles: It is estimated that from 2023 to 2025, the revenue growth rate will be 3%/3%/3%, and the gross profit margin will be 16.4%/16.4%/16.4%.
(8) Finance: It is expected that from 2023 to 2025, the revenue growth rate will be 3%/3%/3%, and the gross profit margin will be 3%/3%/3%.
Based on the above assumptions, we forecast that the company's total revenue in 2023-2025 will be 1327, 1474 and 162.2 billion yuan, a year-on-year increase of -6.3%/+11.1%/+10.0%, and the comprehensive gross profit margin will be 13.9%/14.5%/15.1% respectively.
4.2. Relative Valuation
CIMC Group's business is diversified, and we select comparable companies in the field of road transport vehicles<中国重汽>, marine engineering<海油工程>, <振华重工>shipbuilding and <中国船舶>logistics services<顺丰控股>.
As a leading container manufacturing company, the company will deeply benefit from the rebound of the container industry cycle, in addition, the offshore market recovery, the company is full of orders in hand, the offshore platform rent has risen, and the offshore platform leasing is also more flexible. It is estimated that the net profit attributable to the parent company in 2023-2025 will be 6.85, 2.48, and 3.49 billion yuan, corresponding to PE 62, 17, and 12.
5. Risk Warning
1) Risk of economic cycle fluctuations: The industries in which the company's main business is located depend on the performance of the global and Chinese economy, and change with the fluctuations of the economic cycle. In recent years, the global economic environment has become increasingly complex, and uncertainties have increased, especially trade protectionism, which will have a negative impact on the growth of the global economy and trade. Changes and risks in the global economic environment have put forward higher requirements for the company's management capabilities.
2) Financial market fluctuations and exchange rate risk: The Company's consolidated financial statements are presented in RMB, and the Company's exchange rate risk mainly comes from foreign currency exposure arising from sales, purchases and financing settled in non-RMB. The increased volatility and frequency of the RMB exchange rate against the US dollar due to continued volatility in the global financial market will bring challenges to increasing the company's foreign exchange and capital management.
3) Raw material price fluctuation risk: In the cost structure of the company's products, raw materials account for a relatively high proportion. At the same time, the company's main finished products are metal products, including steel, aluminum, wood, etc. Since 2023, the Fed has continued to raise interest rates, resulting in tight commodity inventories. At the same time, the global economy is showing a trend of regional fragmentation, and supply, demand and prices will also be complex and volatile, which is expected to bring uncertainty to the company's operating results. And march strongly overseas.
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