Summary of Zhongyuan Shipping International Conference Call Company Overview - Zhongyuan Shipping International is a comprehensive shipping service platform under the COSCO Shipping Group, benefiting from the ship renewal cycle and high dividend yield, with a projected revenue of HKD 3.6 billion and a net profit of HKD 710 million in 2024, reflecting a compound annual growth rate (CAGR) of over 30% [2][4][5] Core Business and Performance - The company has established a service ecosystem covering the entire ship industry chain, including paint production, ship trading agency, insurance consulting, and spare parts supply, forming a closed-loop service for the entire lifecycle of ships [2][6] - The paint business is a significant source of elasticity, with Zhongyuan Jotun contributing HKD 290 million in investment income, accounting for 41% of net profit [2][6][7] - Revenue from spare parts and insurance agency business is expected to reach HKD 1.8 billion in 2024, with a stable gross margin of 6% [2][8] Financial Highlights - The company has a high cash reserve, benefiting from the Federal Reserve's interest rate hikes, with financial income increasing from HKD 50 million in 2021 to HKD 270 million in 2024, accounting for 38% of profits [4][13] - The dividend payout ratio has been maintained at around 100%, with a projected dividend of HKD 0.215 per share in 2024, resulting in a dividend yield close to 10% [4][13] Future Growth Prospects - The company is well-positioned for future growth, with expected net profits of HKD 740 million, HKD 760 million, and HKD 800 million from 2025 to 2027, corresponding to price-to-earnings (PE) ratios of 11, 11, and 10 [4][14] - The strategic layout in the green methanol sector, through a joint venture with Jidian and Shanghai Port Group, aims to produce 200,000 tons annually starting in 2026, potentially capturing early advantages in the shipping new energy market [2][12] Valuation and Market Position - Zhongyuan Shipping International is considered a potential candidate for inclusion in the Hong Kong Stock Connect, with a valuation significantly lower than comparable companies, offering a dividend yield of approximately 10% compared to 6%-7% for others [3][4] - The company's reasonable market value is estimated at HKD 10.7 billion, indicating over 30% upside potential from the current market capitalization of HKD 8 billion [4][15] Industry Context - The global shipping industry is experiencing a tightening of environmental regulations, with the International Maritime Organization (IMO) aiming for net-zero greenhouse gas emissions by 2050, making green methanol a preferred choice for shipowners [11] Key Takeaways - Zhongyuan Shipping International is positioned for robust growth with a diversified business model and strong financials, making it an attractive investment opportunity in the shipping sector [9][10]

Core Viewpoint - The company is strategically positioned in the shipping industry, benefiting from both cyclical and stable revenue streams, with a focus on enhancing profitability through various business segments and maintaining high cash reserves for financial stability [1][2][3]. Group 1: Business Segments - The company operates in the shipping service industry, including paint production, ship trading agency, insurance consulting, and supply of ship equipment and parts [1]. - The paint business is expected to see continuous profit growth due to increased shipbuilding volumes and reduced raw material costs from lower oil prices [1]. - The insurance and agency businesses provide stable earnings, benefiting from the shipbuilding renewal cycle and increased global shipping rates [1]. - The ship equipment and parts business has shown consistent growth in scale and stable profit margins due to rising ship delivery volumes [1]. Group 2: Financial Performance - The company maintains a cash reserve of approximately HKD 6 billion, with financial income primarily from bank deposit interest, which has increased from HKD 0.05 billion in 2021 to HKD 0.27 billion in 2024, accounting for 38% of annual net profit [2]. - The company has a high dividend payout ratio, maintaining around 100% from 2020 to 2024, indicating strong cash flow and commitment to shareholder returns, with a projected dividend yield of about 9% in 2025 [2]. Group 3: Strategic Initiatives - The company is proactively investing in green methanol to capture opportunities in the shipping industry's transition to alternative fuels, with a joint venture established to focus on biomass-coupled green methanol production, expected to start production in 2026 with a capacity of 200,000 tons per year [2]. - The company is rated "Buy" with projected net profits of HKD 740 million, HKD 760 million, and HKD 800 million for 2025-2027, corresponding to PE ratios of 11, 11, and 10 times, respectively [3]. - The absolute valuation using FCFF suggests a reasonable market value of HKD 10.7 billion, indicating a potential upside of 29% [3].

Investment Rating - The report initiates coverage with a "Buy" rating for the company [2][7]. Core Views - The company benefits from the shipbuilding cycle and maintains a high dividend payout ratio, which creates a competitive moat [6][7]. - The core business is well-positioned within the shipping industry, with significant contributions from the paint business and stable financial returns from cash reserves [6][7]. Financial Data and Profit Forecast - Revenue projections for 2023 to 2027 are as follows: 3,342 million HKD in 2023, 3,627 million HKD in 2024, 3,333 million HKD in 2025, 3,461 million HKD in 2026, and 3,632 million HKD in 2027, with growth rates of -16%, 9%, -8%, 4%, and 5% respectively [5]. - Net profit attributable to shareholders is forecasted to be 594 million HKD in 2023, 709 million HKD in 2024, 741 million HKD in 2025, 762 million HKD in 2026, and 802 million HKD in 2027, with growth rates of 71%, 19%, 4%, 3%, and 5% respectively [5]. - Earnings per share are expected to increase from 0.40 HKD in 2023 to 0.55 HKD in 2027 [5]. Business Overview - The company is part of the COSCO Shipping Group and operates across the shipping service industry, including paint production, ship trading agency, insurance consulting, and supply of ship equipment and parts [6][19]. - The paint business is expected to see revenue and cost improvements, contributing positively to overall performance [6][31]. - The insurance and agency businesses are stable revenue sources, benefiting from the shipbuilding renewal cycle [6][42]. Strategic Initiatives - The company is proactively entering the green methanol market, aligning with global shipping decarbonization trends [6][67]. - A joint venture for green methanol production is expected to commence operations in 2026, with an annual capacity of 200,000 tons [6][67]. Dividend Policy - The company has maintained a high dividend payout ratio, with a projected dividend yield of approximately 9% in 2025 [6][7].