1Q26 results in line with our expectations

COSCO SHIPPING Energy Transportation (CSET) announced its 1Q26 results: Revenue rose 26.95% YoY and 7.65% QoQ to Rmb7.30bn. Net profit attributable to shareholders rose 207.09% YoY and 65.34% QoQ to Rmb2.17bn, in line with our expectations.

We believe the sharp rise in the firm's 1Q26 earnings and revenue was mainly due to a marked YoY increase in freight rates. According to Clarksons, average freight rates across VLCC routes were US$113,000/day over December 2025– February 2026 (corresponding to the firm’s 1Q26 earnings period), up 238.9% YoY and 17.9% QoQ.

Profit of LNG segment maintained solid growth. In 1Q26, revenue from the LNG shipping business rose 18.8% YoY to Rmb733mn. The firm’s LNG segment contributed Rmb238mn in net profit attributable to shareholders, up 16.5% YoY.

Trends to watch

In the near term, we believe disruptions in strait transit are likely to persist. In the long term, we expect supply constraints, rising industry concentration, restocking demand, and evolving sanctions to continue driving an upward industry cycle.

Currently, there has been no material improvement in strait transit conditions. Data from ChuanShiBao (MyVessel) shows that only four crude tankers passed through the Strait of Hormuz last week. Driven by heightened geoeconomic risks and increased demand for long-haul routes, freight rates have remained elevated.

In the medium-to-long term, we believe VLCC supply constraints may persist, while a notable increase in industry concentration is likely to support higher average freight rates. On the demand side, we think global crude oil inventories may fall sharply. Givenenergy security, we expect global restocking demand to continue.

The CICC commodities team estimate that the deviation of OECD total oil inventories from the five-year seasonal average may decline to -7% by end-April from -1% at end-March. If transit through the Strait of Hormuz fails to resume in May, we believe crude production cuts in Gulf countries may further widen to 15mn barrels per day, with the OECD inventory deviation potentially falling to a record low of -13%, thereby generating strong restocking demand.

In addition, we believe that changes in US sanctions on Iran and Russia could further boost transport demand in the compliant market.

Financials and valuation

We maintain our 2026 and 2027 net profit forecasts at Rmb12.26bn and Rmb13.60bn. A-shares are trading at 9.6x 2026e and 8.6x 2027e P/E, and H-shares are trading at 7.0x 2026e and 6.3x 2027e P/E. We maintain OUTPERFORM ratings for A- and H-shares. We maintain our A-share target price of Rmb26.6, implying 11.9x 2026e and 10.7x 2027e P/E with 23.8% upside. We maintain our H-share TP of HK$22.2, implying 8.8x 2026e and 7.8x 2027e P/E with 25.2% upside.

Risks

Geoeconomic changes; declining global oil shipping demand.