Company Profile Nanjing Shenghang Shipping Co. Ltd. is a China-based company mainly engaged in water transportation of liquid chemicals and oil products. The Company's main business includes self-operated ship transportation business and chartered ship transportation business. Its chemicals mainly include p-xylene, mixed xylene, pure benzene, toluene and o-xylene, among others. Its oil products mainly include naphtha, gasoline, diesel and aviation kerosene, among others. The Company's main business is concentrated in China's eastern and northern regions, and main customers are chemical enterprises. （Source: Reuters）

    Investment Highlights

    As water transportation of hazardous chemicals boasts high entry barriers, the industry has been in tight supply and demand dynamics over the past five years.

    With strict regulations on water transportation of chemicals on the supply side, from entry requirements to new transportation capacity, it is required to increase operating entities and shipping capacity in an orderly manner. While on the demand side, the production and consumption of chemicals are still in steadily-growing demand, and the demand for transportation of chemicals grows steadily along the coastal provinces.

    In 2020, the total transportation scale of chemicals in China reached 33 million tons, up 3.13% year on year, with CAGR during 2016~2020 roughly at 10.05%.

    As for transport capacity, the full-year volume totaled 1.217 million tons, up 8.42% from a year earlier , with CAGR during 2016~2020 at merely 3.43%.

    Shenghang Shipping （the company） focuses on water transportation of hazardous chemicals, and its operating performance shows obvious growth.

    The company mainly engages in water transportation of liquid chemicals and refined oil products in China’s coastal regions and along Yangtze River. Its customers are mainly leading companies in refining and chemical, and it relies on transport capacity buying to realize expansion, enhancing its market share gradually in water transportation of chemicals.

    In the first three quarters of 2021, the company achieved CNY 429 million in revenue, CNY 100 million in net profit attributable to shareholders, up 25.48% from a year earlier. The CAGR of revenue during 2017~2020 was 17.12%, while that of net profit was 43.28%, showing excellent growth attributes.

    With outstanding operating edges, the company boasts high-quality customers and expansion potentials.

    The company adheres to the purpose of passing high-standard checks and strives to form benign interaction and promotion in safety management and customer services.

    The company has passed the check and approval of CDI and leading petrochemical corporations including Shell, BP, BASF, Sinopec and CNOOC, obtaining high-quality chemical customers.

    Currently, the concentration rate of top six companies for water transportation of hazardous chemicals was merely 28%. And the company’s currently market share in transportation capacity was 5.5%. Once going public, it is likely to realize transport capacity expansion to improve market share and take more moves in integration of hazardous chemicals transportation.

    Earnings forecast and investment recommendation Given its outstanding growth, orderly expansion of transport capacity, and specializing in water transportation of hazardous chemicals, we estimated its net profit attributable to shareholders to be CNY 127 million in 2021, CNY 177 million in 2022 and CNY 248 million in 2023, its EPS to be CNY 1.05, CNY 1.47 and CNY 2.07, implying a P/E ratio of 25.5x, 18.2x and 13x, respectively, based on the closing price on Feb. 18th 2022. We give it an “Outperform” rating with the first coverage.

    Potential risks

    transportation operating risks; slower-than-expected expansion; less net profit due to rising fuel oil costs

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