1H25 results in line with our expectations

China Merchants Energy Shipping announced its 1H25 results: Revenue fell 4.91% YoY to Rmb12.59bn, and net profit attributable to shareholders fell 14.91% to Rmb2.13bn, implying EPS of Rmb0.26. In 2Q25, revenue rose 0.13% YoY and 24.92% QoQ to Rmb6.99bn, and attributable net profit grew 12.25% YoY and 45.49% QoQ to Rmb1.26bn, in line with our expectations.

Earnings from oil and dry bulk shipping businesses improved significantly QoQ in 2Q25, while the LNG shipping segment maintained steady growth. The oil shipping business reported a profit of Rmb806mn in 2Q25, up 65.5% QoQ but flat YoY due to a high base.

Freight rates in the TD3C market for major routes averaged US$42,145/d from March to May 2025, reflecting a YoY decline of 5.1% but a QoQ increase of 27.2%.

Dry bulk shipping earnings reached Rmb263mn (down 40.6% YoY but up 65.4% QoQ), primarily influenced by fluctuations in market freight rates. The average BDI declined 20.6% YoY but rose 31.3% QoQ in 2Q25. Despite this, Shanghai Minghua, the firm’s bulk cargo fleet, outperformed the market by 12.34% in terms of TCE, thanks to its flexible operational strategy.

The container shipping segment recorded earnings of Rmb293mn (up 115.4% YoY but down 12.5% QoQ), mainly driven by changes in freight rates for Northeast Asia routes.

The ro-ro shipping segment saw earnings declined 41.1% YoY to Rmb53mn, remaining flat QoQ.

The LNG shipping business continued its robust performance, with earnings increasing 7.9% YoY and 23.8% QoQ to Rmb177mn. The growth was supported by a steadily expanding fleet and a higher lock-in ratio for vessels under long-term contracts, facilitated by the Phase II project. As of 2Q25, the firm had invested in 64 LNG vessels, 61 of which were secured under long-term contracts. We expect the LNG business to sustain solid growth in the coming periods.

Trends to watch

We maintain an upbeat outlook on the oil shipping and dry bulk shipping markets for 2H25. We anticipate that sustained OPEC+ production growth will bolster shipping demand and freight rates by late 3Q25, and we are optimistic about the traditional peak season for oil shipping in 4Q25.

In the long term, VLCC supply main remain constrained, with the shipbuilding orderbook-to-aged-fleet (vessels over 20 years old) ratio standing at only 63%. Rising crude oil exports from the US and South America may further tighten VLCC supply-demand dynamics.

Dry bulk shipping capacity remains tight. Iron ore imports declined in 1H25 due to adverse weather conditions and high inventory levels in China. However, we expect iron ore imports to rebound in 2H25 as steelmakers’ profitability improves under China’s measures to tackle “involution-style” competition. This recovery, combined with the seasonal peak in grain exports during 3Q25, is likely to support dry bulk freight rates.

In the longer term, we believe the commencement of operations at the Simandou iron ore mine by end-2025 should provide a sustained boost to global seaborne transportation demand.

Financials and valuation

Considering lower-than-expected freight rates, we lower our 2025 and 2026 earnings forecasts 19.1% and 8.3% to Rmb5bn and Rmb6.3bn. The stock is trading at 10.8x 2025e and 8.6x 2026e P/E. We maintain our OUTPERFORM rating, but cut our TP 16.7% to Rmb8/sh, implying 13x 2025e and 10x 2026e P/E and offering 19.8% upside.

Risks

Large-scale order placement by oil tanker owners; slowing global economic growth; geopolitical changes.