Two days ago, COSCO Shipping Holdings, the overlord of China's shipping industry, released its annual report.
In 2023, COSCO SHIPPING Holdings will achieve operating income of 175.448 billion yuan, a year-on-year decrease of 55.14%, and non-net profit of 23.743 billion yuan, a year-on-year decrease of 78.24%.
It looks pretty bad, one might even say miserable.
COSCO SHIPPING Holdings itself admits that the general environment in 2023 is indeed not good, with the global economy growing at a low speed, the slowdown in the growth rate of container shipping market demand, the easing of supply chain congestion and the new delivery of ships, etc., which have significantly increased the effective capacity of the market and changed the relationship between supply and demand......
To put it simply, in 2023, demand will decrease and supply will increase, resulting in overcapacity.
In conclusion, the freight rate is down.
Reference: In 2023, the average value of China's export container freight composite index (CCFI) decreased by 66.4% compared with 2022.
But interestingly, throughout 2023, COSCO SHIPPING Holdings' share price has not fallen, but has been in a sideways state.
In the first four months of 2024, the stock price has risen steadily, step by step, from about 9 yuan to 11 yuan.
Although the increase is not large, it is very stable.
In the current economic environment is not good, such a stock price performance can be regarded as a conscience.
What is the logic of COSCO Shipping's holding price continuing to rise?
The key is dividends + freight rates.
In 2023, COSCO Shipping Holdings' performance will decline sharply, but its stock price will be as stable as an old dog, mainly because of its ability to pay dividends.
According to its dividend plan, COSCO Shipping Holdings took out nearly half of the 23.8 billion yuan net profit of 11.866 billion yuan in dividends.
In an uncertain environment, dividend stocks are highly sought after, and COSCO's share price is naturally supported.
What's more important is the freight rate.
Since November 2023, the Houthis have launched attacks in the Red Sea, and many shipping giants around the world have no choice but to suspend the Red Sea route and are forced to detour to the Cape of Good Hope in Africa.
The impact of this event on shipping prices is very far-reaching.
On the one hand, it consumes a lot of capacity, so that the supply side suddenly turns from "surplus" to "insufficient".
As a result, the freight index soared.
Looking at the latest China export container freight index CCFI on April 19, the current value is 1186.
Although it has fallen a little from the panic high in January, it is still about 40% higher than the 800-900 in 2023.
As long as the freight index can remain high for a period of time in the future, this year's performance will not be bad.
It is necessary to know that the reason why COSCO Shipping Holdings is called the "king of cycles" is that the cyclical fluctuations of its stock price are very huge.
What drives the huge fluctuations in the cycle is not the increase in volume demand, but the freight rate.
Sea freight prices are extremely sensitive.
For example, in the last epidemic cycle, in 2018, COSCO SHIPPING Holdings' container shipping business completed 21.792 million TEUs of cargo volume, and in 2021, it was 26.912 million TEUs.
In 2021, there was only an increase of 5.12 million TEUs compared to 2018, that is, an increase of 23.49%.
However, in 2018, COSCO Shipping Holdings' non-net profit was only 190 million yuan, but in 2021, it will be as high as 89.27 billion yuan, an increase of 470 times!
The biggest difference during this period is that -
The average value of the CCFI index in 2018 was 816 points, and the average value in 2021 was 2,616 points, an increase of 3.2 times.
In 2018, the average freight rate of COSCO SHIPPING Holdings was 730 US dollars / container, with a gross profit margin of 8.46%, and increased to an average freight rate of 1797 US dollars / container in 2021, with a gross profit margin of 42.30%.
The corresponding net profit margin soared from 2.50% to 31.14%.
You see, from 2018 to 2021, COSCO SHIPPING Holdings' transportation volume only increased by about 23%, but because the freight index increased by 3.2 times, the average freight rate also increased by 2.46 times.
In the end, it led to a surge in gross profit margin, net profit margin, and an astonishing increase in net profit of 470 times.
The results in 2023 are the opposite, when COSCO Shipping Holdings' non-Chinese mainland route traffic fell by only 3.5%.
However, the average freight rate fell by 41.6% year-on-year, almost 12 times the decline in volume!
The revenue of the two main routes, accounting for 26.2% of the total revenue, was 40.4 billion, a year-on-year decrease of 64.9%;
The revenue of "Asia-Europe routes", which accounted for 21.3% of the total revenue, was 32.9 billion, a year-on-year decrease of 66.1%.
Dragged down by them, COSCO SHIPPING Holdings' revenue will drop by 55.14% in 2023, the gross profit margin will drop to 16.35%, and the net profit will drop by 78.25%.
If it weren't for the market's pursuit of "China Special Valuation" in 2023, COSCO Shipping Holdings' share price would have fallen worse than that of photovoltaic companies.
Of course, in 2024, everything is different again.
As the situation in the Middle East deteriorates and is likely to become prolonged, the shipping market has once again entered an upward cycle, just like the Russia-Ukraine war.
On the other hand, it should be pointed out that in the Red Sea incident, the Houthis mainly targeted Western shipping companies.
The impact of the Chinese fleet is relatively small.
If the Chinese fleet can be safeguarded and transported through the Red Sea, it will inevitably have a cost advantage over the Western fleet that needs to detour the Cape of Good Hope and gain a larger volume of business.
This will have a very important impact on its performance growth this year.
Finally, it must be mentioned that this year will be a year of recovery in international trade -
From the demand side, both the growth rate of retail sales in the United States and the manufacturing PMI trend of major emerging countries are in an upward stage.
Rising international trade demand, tight supply due to the burning war in the Middle East, and unexpected security cost advantages for China's shipping industry......
With the support of the above logic, COSCO Shipping Holdings, the king of the cycle, is destined to "make a fortune in a muffled voice" again.