1Q25 results in line with our expectations

COSCO SHIPPING Energy Transportation (CSET) announced its 1Q25 results: Revenue fell 4% YoY and 5.7% QoQ to Rmb5.75bn, and attributable net profit decreased 43.3% YoY and rose 13.9% QoQ to Rmb708mn (implying EPS of Rmb0.15/sh), in line with our expectations. The firm's earnings and revenue declined in 1Q25, mainly due to a YoY decrease in freight rates for foreign trade. According to Clarksons, freight rates for very large crude carriers (VLCCs) averaged US$33,607/day over December 2024–February 2025, down 32.4% YoY and 6.2% MoM. The average freight rate for VLCC-TD3C over the same period was US$31,997/day, down 23.3% YoY and up 0.4% MoM.

Trends to watch

Production increase by OPEC+ to boost demand for crude oil shipping; supply remains tight; freight rates for VLCCs have rebounded recently; average freight rates to rise in 2025. OPEC+ increased oil production as expected in April and announced that it would accelerate production increase in May. This, coupled with falling oil prices, should boost refinery processing and restocking demand and bolster the growth of crude oil shipping volume, in our view. On the supply side, we think new vessel supply in the oil shipping market will remain limited for a few years. In addition, escalating sanctions on shadow fleets from Europe and the US likely will redirect cargoes to compliant operators and accelerate the dismantling of aging vessels, which may further constrain supply in the oil shipping market. According to Clarksons, average freight rate for VLCCs has dropped 7.4% YoY to US$39,562/day YTD. The freight rate for VLCCs has been increasing since April, with that for VLCC-TD3C growing 47.6% YoY and 37.2% MoM to US$52,737/day last week (April 21–25).

We are upbeat on CSET's earnings upside, given its attractive dividend payments and valuation. Given the firm’s current earnings and a 50% payout ratio assumption, its A- and H-shares imply dividend yields of 5.6% and 10.4% in 2025, which are attractive. We are upbeat on CSET's earnings growth amid the industry uptrend.

The firm announced a private placement to support the construction　of oil tankers and LNG carriers. According to corporate filings, CSET plans to raise no more than Rmb8bn via the private placement, and the proceeds will be used for the construction of six VLCCs, two liquefied natural gas (LNG) carriers, and three Aframax tankers. The number of A- shares to be issued through the private placement will not exceed 30% of pre-issuance share capital. The firm’s parent company COSCO Shipping Corporation Limited has pledged to subscribe for 50% of the offering.

Financials and valuation

We keep our 2025 net profit forecast of Rmb5.58bn, and introduce our 2026 net profit forecast of Rmb6.77bn. A-shares are trading at 8.9x 2025e and 7.3x 2026e P/E, and H-shares are trading at 4.8x 2025e and 3.9x 2026e P/E. We maintain an OUTPERFORM rating. Given falling risk appetite in the industry, we cut our TP 18.2% to Rmb13.5 for the A-shares, implying 11.6x 2025e and 9.5x 2026e P/E and offering 29.6% upside. We cut our TP 13.7% to HK$8.2 for the H-shares, implying 6.6x 2025e and 5.4x 2026e P/E and offering 36.9% upside.

Risks

Geopolitical changes; falling domestic demand for oil products.