Ocean freight prices have gone crazy.
Since April, the Europe-bound container shipping rates have ushered in a new round of sharp increases, with a monthly increase of 62.66%; since May, the highest reported rate was 4,034.3, setting a new historical high; this year to date, the cumulative maximum increase has exceeded 160%.
Under this context, ocean freight rates have skyrocketed, with weekly increases of up to $500, severe shortages of containers at ports, and some routes experiencing a "one cabin hard to find" situation.
Data provided by the data institution Freightos shows that since the end of April, container freight rates from Asia have increased by about $1,000/FEU (40-foot container), with prices for routes to the U.S. West Coast and Northern Europe rising to $4,000/FEU, and rates for routes to the Mediterranean increasing to $5,000/FEU.
Therefore, it is not surprising that COSCO Shipping Holdings has made a fortune again!
In terms of performance, in 2023, COSCO Shipping Holdings' operating income and net profit respectively declined by 55.14% and 78.25%. However, in the first quarter of this year, COSCO Shipping Holdings' operating income was 48.27 billion yuan, a year-on-year increase of 1.94%; net profit was 6.755 billion yuan, a year-on-year decrease of 5.23%. It is clear that there are signs of stabilization.
In terms of stock prices, they are also the first to know when the spring river water warms up. As of May 15th, the year-to-date increase of COSCO Shipping Holdings' A-shares was 48.75%, and the Hong Kong stock year-to-date increase was 60%, setting a new high since 2021.
So, does COSCO Shipping Holdings still have opportunities?
COSCO Shipping Holdings' business is very simple, which is container transportation, plus a bit of port business. The company's operating performance mainly depends on shipping prices and transportation costs. Theoretically speaking, the higher the shipping prices and the more cargo loaded, the more profit is made.
Of course, many people are still worried about whether there will be cyclical disturbances. Once the industry falls into a trough, the more ocean-going cargo ships owned, the greater the losses, and even bankruptcy and closure may occur.The answer is, the likelihood of such concerns is already very, very low!
Those familiar with COSCO SHIPPING Holdings Co., Ltd. know that 2016 was a significant watershed. Prior to 2016, COSCO SHIPPING Holdings Co., Ltd. had six consecutive years of negative net profits excluding non-recurring gains, and at one point, it was crowned the king of losses in the A-share market. However, times have changed.
Before 2016, the predecessor of COSCO SHIPPING Holdings Co., Ltd., China COSCO Shipping Corporation, mainly focused on "bulk" transportation; after 2016, following a restructuring, COSCO SHIPPING Holdings Co., Ltd. transformed its bulk transportation business into container transportation, becoming the fourth-largest container shipping company globally. In 2018, it acquired Hong Kong's "OOCL," thus becoming one of the top three container shipping giants in the world.
It can be observed that among the world's major shipping companies, COSCO SHIPPING Holdings Co., Ltd.'s net profit margin is second only to Hapag-Lloyd, ahead of Maersk and CMA CGM. This means that compared to other shipping giants, COSCO SHIPPING Holdings Co., Ltd. has a more outstanding cost control capability.
Note that this data is very important.
This implies that when the industry is in a prosperous cycle, COSCO Shipping has a stronger profitability; when the cycle is on the downturn, COSCO SHIPPING Holdings Co., Ltd. also has a stronger ability to withstand risks.
Therefore, we can summarize as follows:
First, although shipping is a strong cyclical industry, the cyclicality is mainly related to the global economy, spanning ten years or even longer, rather than the company itself;
Second, the transition from "bulk transportation" to "container transportation" indicates that COSCO SHIPPING Holdings Co., Ltd.'s main business has changed, with this segment's demand being more stable, characterized by oligopolistic competition, and the market competition is more orderly, leading to more stable profitability;
Third, the net profit margin shows that compared to peer companies, COSCO SHIPPING Holdings Co., Ltd. has a more significant cost advantage.Fourth, setting aside the exceptional years of 2021 and 2022, in 2023, COSCO Shipping Holdings Co., Ltd.'s dividend payout ratio approached 50%, and moving forward, this high dividend policy is expected to continue, making the company's value proposition increasingly evident.
Fifth, as of the end of 2023, COSCO Shipping Holdings Co., Ltd. had monetary funds of 182.3 billion yuan, but short-term borrowings and non-current liabilities due within one year were less than 20 billion yuan, with a debt-to-asset ratio of less than 50%. This means that the company's financial health is also improving significantly.
In a nutshell, COSCO Shipping Holdings Co., Ltd. has transformed and is no longer the same as it was before 2016.
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