2018 results in line with expectation
COSCO Shipping Energy’s 2018 revenue rose 27% YoY to Rmb12.1bn,and attributable net profit tumbled 96% YoY to Rmb75mn orRmb0.0185/sh. The company proposed Rmb0.2 cash dividend per tenshares, implying payout ratio of 76.7%.
Under PRC GAAP, 4Q18 earnings topped Rmb376mn vs. 1-3Q18 lossof Rmb270mn thanks to rebounding tanker rate. TCE for VLCC TD3C（from Middle East to China） rose 330% in 4Q18 to US$44,794/day vs. 1-3Q18. Segment-wise in 2018, domestic oil tanker revenue grew45% after acquiring product oil tanker fleet from PetroChina, whileLNG before-tax profit increased 73% YoY to Rmb410mn after deliveryof eight new vessels.
Trends to watch
We maintain our view that the oil tanker market has bottomed andwill trend upwards, and COSCO Shipping Energy enjoys strong upsidein sector up-cycle. Oil tanker dismantling volume hit a record high in2018 since 1986, and backlog to fleet ratio is at a low of 11%. Wethus expect fundamentals to bottom and oil tanker rate to rebound.
The company boasts the largest oil tanker fleet in the world, and aUS$10,000/day rise in TCE should enhance its earnings by Rmb1bn.
Domestic oil tanker and LNG transportation to ensure earningsgrowth （2018a revenue contribution at 45%） and may see moreupside in the coming two years
Earnings forecast
Maintain 2019-20e earnings forecast at Rmb958mn/Rmb2,002mn.
Valuation and recommendation
A/H-share is trading at 0.8x and 0.5x 2019e P/B. Maintain BUY and TPat Rmb6.94 （1.0x 2019e P/B and 17% upside） and HK$6.36 （0.8x2019e P/B and 45% upside）。
Risks
Weak crude oil demand; sharp rise in oil prices; continued productioncut by OPEC countries; disappointing vessel dismantling volume.