Results Review

2024 results in line with our expectations

Zhonggu Logistics announced its 2024 results: Revenue fell 9.5% YoY to about Rmb11.26bn and net profit attributable to shareholders rose 6.9% YoY to around Rmb1.84bn, implying an EPS of Rmb0.87. In 4Q24, revenue fell 10.6% YoY and rose 4.0% QoQ to about Rmb2.81bn, and net profit grew 38.3% YoY and rose 106.4% QoQ to Rmb727mn. The results are in line with our expectations. We attribute the YoY earnings growth to gains from the sale of vessels and growing earnings from the foreign trade segment. In 2024, the firm sold three vessels. If the gains from asset disposal is deducted, the firm's profit was Rmb1.54bn in 2024, up 2.1% from 2023 on the comparable basis.

Full-year 2024 dividend payout ratio was 90.39%, indicating attractivedividends. The firm announced a total cash dividend of about Rmb1.66bn for 2024, accounting for 90.39% of its net profit attributable to shareholders in 2024. Its current share price implies a dividend yield of 7.5%, which is attractive.

Trends to watch Earnings to remain stable in 2025; supply and demand conditions for domestic trade to improve YoY; foreign trade-related business toprovide earnings support. Freight rates for domestic trade have improved YoY since the beginning of 2025, and the YTD average of PDCI was +9.3% YoY as of March 28. We expect supply and demand conditions for domestic trade to improve YoY in 2025. On the supply side, we believe the shift of shipping capacity to domestic trade could be limited amid high rents for foreign-trade vessels. The rents for small foreign-trade vessels now stay high. Meanwhile, we think demand could be boosted by improving domestic demand. As such, we expect domestic-trade freight rates to rise YoY in 2025. We expect the firm's foreign trade-related business to contribute more earnings in 2025, helping the firm record solid earnings, as the firm allocates more vessels to foreign trade and vessel rents are higher this year1.

Demand to be boosted by the shift from bulk shipping to container shipping in the long term. According to the Port Statistical Yearbook, thecontainerization rate of cargo throughput at China's ports was about 20.2% in 2022, still much lower than that of developed countries (more than 50%), and the proportion of coal transported by containers is even lower at low single digits. As a standardized and intensive mode of transportation, we believe containerized transportation could continue to gain market share.

Financials and valuation

We leave our 2025 net profit forecast largely unchanged, and introduce our 2026 net profit forecast of Rmb1.74bn. The stock is trading at 11.7x 2025e P/E and 12.7x 2026e P/E. We maintain our OUTPERFORM rating and target price (12.8x 2025e P/E and 13.9x 2026e P/E; 9.6% upside). As of end-2024, the firm had about Rmb12.3bn cash on hand and nearly Rmb5.7bn net cash (including wealth management products and structured deposits), implying ample cash. The firm has a strong desire to pay dividends, and its dividend payout ratio was 73.5%, 88.0% and 90.4% for 2022-2024. Assuming the 2024 payout ratio is maintained in 2025, this implies a 2025e dividend yield of 7.7%. If the 2025 payout ratio is 60% of the firm's promised level, this implies a 2025e dividend yield of 5.1%.

Risks

Geopolitical changes; falling vessel rents for foreign trade; the shift of shipping capacity to domestic trade; slowing domestic economic growth.