SHENGHANG SHIPPING(001205)：SHIPPING CAPACITY STEADILY EXPANDING;NEARTERM EARNINGS TO INCREASE

　　3Q22 results in line with our forecast
　　Shenghang Shipping announced 1-3Q22 results: Revenue rose 43.5% YoY to Rmb615mn, and attributable net profit grew 35.3% YoY to Rmb135mn (Rmb0.79/sh), in line with expectations. In 3Q22, revenue increased 55.1% YoY (5.0% QoQ) to Rmb222mn, and attributable net profit rose 21.2% YoY (down 12.9% QoQ) to Rmb44mn. Net margin declined 5.6ppt YoY (4.1ppt QoQ) in 3Q22 to 20%, as: 1) average freight rates for domestic ship routes for chemical transport declined QoQ; and 2) operating costs rose due to growing business scale and acquisition of firms along the industrial chain.
　　Trends to watch
　　Shipping capacity for chemicals in domestic market growing; results likely to increase over the short term. Shenghang says that it will invest no more than Rmb33,000 to acquire five vessels to transport chemicals, and it plans to put two into operation within the year. YTD, the firm is operating 26 vessels with combined capacity of 126,800 deadweight tonnes, ranking No.2 in the industry. Of these, 21 transport chemicals and Shenghang building another two vessels for that purpose. We believe that the firm will add one vessel per year to transport chemicals. We expect the revenue from sea transport of liquid chemicals to rise rapidly, as large refineries in coastal regions gradually start operation.
　　Significant market for transporting chemicals overseas; expanding to overseas markets; to benefit from rising export volume of chemicals and refined oil. Given the energy crisis in Europe, we think that large global chemical enterprises will increase investment in China due to its lower raw material costs and a stable supply chain, thereby boosting the country’s chemical export volume. We also expect the Russia-Ukraine conflict to continue impelling European demand for non-Russian oil and refined oil. The fifth group of refined oil export quotas increased. We think the export volume of refined oil in China will maintain growth. Shenghang has bought two vessels this year to transport chemicals overseas. and it used some of the domestic vessels for chemical export. The firm proposed establishing a subsidiary in Hong Kong to specialize in transporting liquid chemicals and refined oil. We believe that Shenghang will see continued growth over the long term as it expands to overseas chemical markets.
　　Financials and valuation
　　We maintain our 2022 and 2023 earnings forecasts. The stock is trading at 24.5x 2022e and 17.2x 2023e P/E. We maintain OUTPERFORM and our TP at Rmb43, implying 36.9x 2022e and 25.9x 2023e P/E, offering 50.6% upside.
　　Risks
　　Liquid-chemical output declines; pace of M&As disappoints; transport safety accidents.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。