1H24 results in line with our expectationsSITC International announced its 1H24 results: Revenue rose 3.8% YoY and 10.6% HoH to US$1.30bn. Net profit attributable to shareholders grew 13.0% YoY and 58.6% HoH to US$351mn, implying EPS of US$0.13. The firm’s 1H24 results were in line with our expectations.
　　GM improved both YoY and HoH in 1H24. GM increased 4.5ppt YoY and6.2ppt HoH to reach 31.0% in 1H24. This improvement was mainly due to better freight rates, a higher proportion of self-owned vessels, and reduced costs from lower chartered vessel rents. The cost per container decreased by 11.4% YoY and 0.3% HoH in 1H24, while revenue per container declined by 5.7% YoY but increased by 8.6% HoH.
　　In 2Q24, sales volume and prices of the firm's container shippingbusiness both increased. In 2Q24, the firm's container shipping volume increased by 12.1% YoY and 28.9% QoQ, while revenue per container (excluding space swaps) grew by 42.6% YoY and 18.7% QoQ. We attribute the rising freight rates to higher shipping volumes driven by increased demand in Europe and the US, as well as the indirect consumption of shipping capacity in Southeast Asia due to the Red Sea bypass. In 2Q24, the CCFI for Southeast Asia routes rose by 22.6% YoY and 37.9% QoQ, while the CCFI for Japan routes fell by 5.5% YoY and 16.0% QoQ, and that for South Korea routes dropped by 4.5% YoY and 18.6% QoQ.
　　The firm's interim dividend payout ratio is 70%, indicating anattractive dividend. The firm announced a 70% payout, consistent with its previous ratio. If the full-year payout ratio remains at 70%, the current share price implies an attractive 2024 dividend yield of 8.7%.
　　Trends to watch In the long term, we believe that new shipping capacity in the intra- Asia market is limited, and the proportion of old vessels is high. We expect demand to continue growing due to industry relocation within the region, and we anticipate supply and demand conditions toimprove year by year. According to Clarksons data, the capacity of small vessels with less than 3,000TEU will grow by 6.2% this year, and 1.7% of new capacity is likely to be delivered in 2025. Older vessels, aged over 20 years, will account for 24% of the total capacity. We believe the growth rate of effective capacity may decelerate further as older vessels are dismantled and slow sailing increases due to environmental regulations.
　　On the demand side, we expect intra-Asia cargo volume to maintain　growth thanks to industry relocations between China and Southeast Asian countries. Clarksons estimates that intra-Asia container shipping capacity will grow by 4.5% in 2024 and by 3.2% in 2025.
　　Financials and valuation
　　Given that freight rates in the 4Q24 peak season are likely to exceed expectations, we raise our 2024 and 2025 net profit forecasts by 8.4% and 10.1% to US$730mn and US$552mn. The stock is trading at 8.1x 2024e and 10.6x 2025e P/E. We maintain an OUTPERFORM rating and, due to the declining risk appetite in the sector, we keep our target price unchanged at HK$24.3/share, implying 11.5x 2024e and 15.1x 2025e P/E, offering 42.9% upside.
　　Risks
　　Changes in geopolitical risks; slowdown in global economic growth.