Summary of COSCO Shipping Energy Transport Management Update Call Company Overview - **Company**: COSCO Shipping Energy Transport (CSET) - **Date of Call**: 16 October 2025 - **Stock Codes**: 1138.HK / 600026.SH Key Industry Insights - **Tanker Cycle Outlook**: Management expressed a positive outlook on the tanker cycle, driven by: 1. **Demand Recovery**: Supported by OPEC's steady output recovery and China's Strategic Petroleum Reserve restocking [2][32] 2. **Supply Constraints**: Effective supply tightening due to India's shift towards compliant Middle-East and Latin-American crude, extreme weather, gray-fleet retirements, and shipyard congestion [2][32] 3. **Policy Drivers**: Introduction of port fees on US-linked vessels in China, escalating US-China trade tensions, and participation in Brazil through a joint venture with CNOOC [2][32] 4. **Shareholder Returns**: Plans to resume dividends and buybacks post-restrictions [2][32] Financial Performance and Forecasts - **3Q25 Revenue Forecast**: Expected to be Rmb4.95 billion, a decrease of 5% YoY and 16% QoQ [4] - **3Q25 NPAT Forecast**: Expected to be Rmb976 million, an increase of 26% YoY but a decrease of 16% QoQ [4] - **4Q Earnings Rebound**: Anticipated due to strong spot rates, with average TD3C rates around US$72k/day since September [4] Supply and Demand Dynamics - **OPEC+ Production Increase**: OPEC+ has increased production by approximately 2.47 million barrels per day since April, providing substantial cargo volumes for long-haul shipments [8] - **VLCC Market Trends**: The VLCC market has shown volatility, with rates fluctuating significantly due to geopolitical events and market sentiment [8][12] - **Impact of Sanctions**: US sanctions and China's reciprocal port fees have created a bullish environment for compliant tonnage, with high TCEs expected to persist [8][12] Strategic Initiatives - **Decarbonization Efforts**: CSET is testing methanol-dual-fuel VLCCs and exploring new energy solutions, aligning with long-term carbon reduction goals [18] - **Expansion in Brazil**: CSET is increasing its presence in Brazil through a joint venture with CNOOC, capitalizing on growing Brazilian crude output [18] Valuation and Investment Thesis - **Price Target**: CSET-H target price set at HK$12, reflecting a potential upside of 25% [34][39] - **Investment Thesis**: CSET is rated Overweight based on: 1. Industry recovery signals post-2025 2. Scrapping of older vessels and tightening supply discipline 3. Diversified fleet mix and strong market positioning 4. Limited exposure to geopolitical risks [33][43] Risks and Considerations - **Downside Risks**: Include slower-than-expected recovery in tanker demand, regulatory cost pressures, and geopolitical uncertainties [45] Conclusion - CSET is positioned favorably within the tanker market, with strong fundamentals and a clear strategy for navigating current challenges, making it an attractive investment opportunity as the market tightens into 2026 [32][38]

Core Viewpoint - Morgan Stanley initiates coverage on China Merchants Energy Shipping Company (600026) with an "Overweight" rating for Hong Kong stocks and a target price of HKD 12, while assigning a "Neutral" rating for A-shares with a target price of RMB 13 [1] Company Overview - China Merchants Energy Shipping is the largest oil tanker operator in China and a leading global player in crude oil, refined oil, and LNG transportation [1] - The company operates a diversified fleet under China Merchants Group's energy transportation division, providing it with a competitive edge in a volatile freight market [1] Financial Projections - The company is expected to achieve a compound annual growth rate (CAGR) of 16% in net profit from 2025 to 2027, driven by freight recovery, structural supply-demand catalysts, and cautious fleet expansion [1] - Revenue CAGR is projected at approximately 8% from 2025 to 2027, supporting an improvement in profit margins, with net profit margin increasing from 19% in 2025 to 21% in 2027 [1] Fleet Expansion - The fleet is anticipated to grow from 246 vessels in 2024 to 290 vessels by 2027, positioning the company to capitalize on the next upward cycle in the market [1] Debt and Cash Flow - The net debt ratio is expected to rise from about 52% in 2025 to approximately 67% in 2027; however, strong operating cash flow and asset backing will keep leverage manageable [1] - LNG revenue is projected to increase its share to around 13% by 2027, enhancing revenue visibility [1]