COSCO Shipping Holdings, it's a blockbuster.

According to the performance forecast, COSCO Shipping Holdings' net profit attributable to the parent company for the first three quarters is approximately 38.12 billion yuan, a year-on-year increase of 72.72%. Looking solely at the third quarter, COSCO Shipping Holdings' net profit is 21.25 billion yuan, a year-on-year increase of 285%.

Perhaps putting it another way is more intuitive. In the third quarter of this year, COSCO Shipping Holdings earned 240 million yuan per day, the money-making effect is evident.

Regarding the reason for the significant increase in performance, the official explanation is as follows:

On the one hand, influenced by the ongoing situation in the Red Sea, the global supply chain is generally tight, with insufficient effective supply; on the other hand, the main routes of the Europe and America market have entered the peak season, and the container shipping market is showing a positive trend, with COSCO Shipping Holdings' container shipping business achieving an increase in both price and volume.

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Focus on freight rates.

This year's shipping prices are much higher than last year. Although there was a correction in the first two months, the container freight index has recently returned to above 2000 points. On October 11th, the main contract of the container shipping Europe route futures continued to hit two daily limits, reporting 2494.3 points.

That is to say, there are signs that container freight rates are stabilizing after a decline, and the performance in the fourth quarter may be even better!

However, some may argue that COSCO Shipping Holdings is a cyclical stock, and its stock price is not directly related to its performance. This is true, but not entirely correct.

In 2023, COSCO Shipping Holdings' operating income was 175.4 billion yuan. Although it decreased by 55.14% year-on-year, it is still higher than the levels of 2019 and 2020. As for net profit, it is 3.5 times that of 2019 and 2.4 times that of 2020.What does it illustrate?

Affected by the situation in the Red Sea and the pandemic, the company's revenue saw a sharp increase in 2021 and 2022. However, after the pandemic ended, COSCO Shipping's revenue did not return to its original state. In 2019, COSCO Shipping's gross margin was 11.09%, and in 2023 and the first half of this year, the figures were 15.72% and 22.88%, respectively.

In other words, COSCO Shipping's gross margin is now far higher than in the past.

In other words, COSCO Shipping's logic has changed.

As we all know, COSCO Shipping's main businesses are container shipping and terminal operations. The former competes in the number of routes and scale costs, while the latter is mainly about collecting rent.

Globally, because container shipping requires heavy asset investment, the market concentration is very high, mainly controlled by a few oligarchs including COSCO Shipping.

According to the semi-annual report data, COSCO Shipping's self-owned fleet has a scale of 527 ships, with a total capacity of more than 3.24 million TEUs. In addition, the company has a total of 20 new ships under construction, with a combined capacity of nearly 570,000 TEUs.

That is to say, COSCO Shipping's capacity will be further improved in the future. Theoretically, as long as demand remains strong, profitability will only become stronger and stronger.

The key point is, will market demand suddenly decline?

Despite the ups and downs of the global economy, ocean-going trade is generally a "growth stock" rather than a "cyclical stock," especially in China, which is itself the world's factory, and with the policy of the Belt and Road Initiative, the demand for maritime transport has generally maintained a trend of steady growth.In that case, we must again discuss COSCO Shipping Holdings Co., Ltd.'s risk resistance capability, which is its financial strength.

In 2022 and 2023, COSCO Shipping Holdings Co., Ltd.'s dividend payout ratio was around 50%, with a total dividend payout of 66.7 billion yuan; in the first half of this year, COSCO Shipping Holdings Co., Ltd.'s mid-term dividend was 8.3 billion yuan. It is evident that COSCO Shipping Holdings Co., Ltd. has sufficient capability to pay dividends.

As of the end of June 2024, COSCO Shipping Holdings Co., Ltd.'s book monetary funds were 173.6 billion yuan, with corresponding short-term borrowings and interest-bearing liabilities due within one year amounting to only 16.2 billion yuan, which is almost negligible. Additionally, the net operating cash flow for the first half of the year was 22.638 billion yuan, a year-on-year increase of 70.7%, with corresponding capital expenditures of 11.827 billion yuan, indicating a significant inflow of funds.

In a nutshell, apart from meeting substantial capital expenditures for shipbuilding, COSCO Shipping Holdings Co., Ltd. can still ensure a dividend payout ratio of around 50%, which is truly rare.

Therefore, my view on COSCO Shipping Holdings Co., Ltd. is as follows:

If one believes that the global macroeconomy and ocean-going trade have cyclical characteristics, then COSCO Shipping Holdings Co., Ltd. is a cyclical enterprise. However, from 2019 to the present, judging from the company's profitability and dividend distribution, COSCO Shipping Holdings Co., Ltd. has become a blue-chip stock with growth potential.

So, what does everyone think?