CICC published a research report stating that given freight rates performing better than expected, the firm has raised SITC's (01308) net profit forecasts for 2025/2026 by 38.9% and 38.9% to US$1.26 billion and US$1.06 billion respectively. The 2026 earnings are based on a conservative assumption of freight rates declining 9% year-over-year. The current stock price corresponds to 7.4x/8.8x P/E ratios for 2025/2026. The firm maintains its outperform rating, but considering the downward trend in industry risk appetite, CICC has raised the target price by 15.2% to HK$28 per share, corresponding to 7.7x/9.2x P/E ratios for 2025/2026, representing 4.3% upside potential from the current stock price.
CICC's main views are as follows:
1H25 results slightly exceeded expectations
The company announced 1H25 results: revenue of US$1.664 billion, up 28.0% year-over-year; net profit attributable to shareholders of US$630 million, corresponding to basic earnings per share of US$0.24, up 79.7% year-over-year. The company's first-half performance slightly exceeded expectations, mainly due to freight rates being better than previously anticipated.
2Q25 cargo volume maintained rapid growth, freight rates remained at high levels, with 1H25 gross margin and net margin significantly improving year-over-year
In the second quarter, the company completed container shipping volume of 1.034 million TEU, up 7.7% year-over-year. For 1H25, the company's container shipping volume increased 7.3% year-over-year. 2Q25 freight rates remained at high levels year-over-year. The company's revenue per TEU (excluding slot exchange revenue) was US$756/TEU, down 6.0% quarter-over-quarter but up 14.5% year-over-year. In Q2, CCFI freight rate indices for Japan, Korea, and Southeast Asia routes increased 32.7%, 8.2%, and 10.5% year-over-year respectively, and changed -0.5%/+0.6%/-10.3% quarter-over-quarter respectively. Benefiting from strong freight rate performance, the company's gross margin and net margin improved by 9.3/10.9 percentage points year-over-year in the first half.
Company's interim dividend payout ratio approximately 70%, offering attractive dividend yield
According to the announcement, the company declared approximately 70% dividend payout, maintaining consistency with the 2024 interim dividend ratio. The firm believes that if the company maintains a 70% full-year dividend payout ratio, the current stock price corresponds to dividend yields of 9.5%/7.9% for 2025/2026, which are attractive.
Supply tightness continues in the sub-3,000 TEU small vessel market where the company operates
According to Clarksons data, the current order book for vessels under 3,000 TEU stands at 5.4%, while vessels over 25 years old account for 11.2% of capacity. Existing orders are insufficient to meet future vessel replacement needs, and aging vessels may further reduce fleet efficiency. Additionally, the container shipping industry's demand for small vessels has increased more rigidly than before, keeping small vessel charter rates at high levels since the beginning of the year, with shipowners securing longer charter periods, diverging from spot freight rate performance.
Benefiting from Southeast Asian economic growth and continued industrial transfer within Asia, the firm believes the company's demand prospects remain positive
According to iFinD data, China's import and export volumes with ASEAN countries and Japan increased 9.4%/4.5% year-over-year in January-July 2025, while import and export volumes between Japan and major ASEAN countries increased 4.6% year-over-year. The firm believes that as a leading company focused on intra-Asian routes, SITC is well-positioned to fully benefit from rapid cargo volume growth within the region and achieve above-industry growth rates. According to Clarksons, intra-Asian container cargo volumes are expected to grow 3.6%/3.0% year-over-year in 2025/2026.
Risk factors: Changes in geopolitical risks, global economic growth slowdown.