The following articles are from Li Meicen Investment Strategy. The author is professionally forward-looking global vision
Li Meicen Investment Strategy .
Li Meicen, chief strategy analyst of Caitong Securities . Peking University Master's degree, Singapore National University Master's degree. He has won New Fortune, Crystal Ball, Golden Kirin Best Analyst for many years. Representative works "Invest in Core Assets" and "Changniu: The Logic of Stock Market Operation in the New Era".
core view
Federal Reserve enters interest rate hike cycle , and the economic prosperity is downward catalyzing expected freight rates to fall. In 2022, in order to cope with the inflation rate of up to 8.6%, the Federal Reserve raised interest rates on on March 17, May 4 and June 16, respectively, resulting in a contraction of overseas demand and the price of commodities fell, driving the price of midstream shipping to fall. The average CDFI comprehensive index in July was 1520, a month-on-month decrease of 9%; the average BDI index in July was 2077, a month-on-month decrease of 13%.
reviews the shipping cycle, which is closely related to the demand side: global economic prosperity and maritime trade volume change in the same direction in the long term; import and export amounts peaked year-on-year with BDI growth rate. Shipping demand is mainly affected by the economic situation and trade demand, but occasional events will also have a huge impact on shipping demand, which increases the difficulty of pre-predictions.
theoretical dimension, the upward shipping cycle transmits to the company's financial statements as follows:
1) Operating cost/sales expenses: 1 is uncertain factors such as the surge in sea freight costs, insufficient capacity, uncertain shipping schedules, etc., which affect the export of large quantities of cargo on time, greatly increasing the storage cost of and transportation costs, and subsequent orders cannot fulfill their contracts normally. Second, the increase in sea freight costs will further push up the prices of imported raw materials and increase material costs.
2) Profit level: The impact of rising sea freight fees and raw material prices cannot be transmitted to the downstream in a timely and completely, the profit margin is squeezed, and the profit level is limited, which leads to a narrowing of gross profit margin.
3) Operating cash flow: The sharp rise in raw material prices and the surge in sea freight costs have prompted the company's operating cash flow to flow out significantly.
freight suppresses the performance and share prices of export-oriented companies. By reviewing the stock prices and gross profit margins of export-oriented companies, we came to the following conclusion:
1) Cereal Food Company: High freight costs suppress the gross profit margins of Bunge and ADM companies; the stock price fluctuates in the long-term dimension and the stock price in the same direction, but at the turning point of the decline in high freight costs, the stock prices of the two companies will mostly rise in the short term.
2) Iron ore company: international iron ore leader Vale and BHP Billiton have short-term excess returns at the inflection point of freight downward.
3) Consumer-oriented companies: Costco's stock price and freight rate are highly positively correlated, and the correlation coefficient with CCFI is as high as 0.65; while the company's gross profit margin and freight rate change in the opposite direction.
In short, sea freight and export-oriented company stock prices fluctuate in the same direction for a long time, and short-term divergence may occur at the turning point of freight downward; the rise in freight prices will mostly suppress gross profit margins.
respectively explores the export-oriented industries with the increase in volume and profit during the downward period from the historical review and the current prosperity:
· Historical review: Polyurethane , Automobile parts repair elasticity and stability
1) The automobile chain attaches importance to the tire dilemma reversal: Tire leader avoids "double anti-double" sanctions through production capacity layout in Southeast Asia, Europe and other regions, takes the opportunity to achieve globalization of the industrial chain, and helps the company become an international first-tier brand; domestic downstream demand for tires continues to improve, automobile sales in July continued to be prosperous, and tire operating rate rebounded.
2) The polyurethane economy is rapidly recovering, and the shortage of overseas TDI supply is good for subsequent exports: html Polyurethane exports quickly recovered from high prosperity in 46, and TDI and polymer MDI exports have increased significantly; overseas TDI capacity supply is limited, coupled with the continued high overseas energy/electricity prices, and the cost of polyurethane is running at a high level, and the TDI export prosperity is expected to continue to improve.
· Current prosperity: Textile machinery, photovoltaic and other industries maintain a high growth rate
1) Textile manufacturing industry returns to Southeast Asia, and textile and garment equipment exports grow rapidly: Affected by the return to Southeast Asia, sewing machinery exports to Southeast Asian countries have achieved significant growth. From January to June, textile machinery exported US$2.6 billion, an increase of 10.00% year-on-year, and the growth rate increased by 5.20% month-on-month.
2) Domestic and foreign demand resonates, solar cell export/photovoltaic installation continues to have a high prosperity: Internationally, energy crisis is getting worse and worse, and the export of energy/electricity double tight solar cell is increasing; domestically, power load is tight, social electricity demand is rising, and photovoltaic installed capacity has achieved rapid growth.
risk warning: freight rates fall less than expected; industry prosperity is lower than expected; epidemic risk; macroeconomic downward risk.
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Introduction: Sea freight capacity is tight and freight costs soar in 2021, which has severely suppressed the shipments and costs of my country's export-oriented enterprises. Recently, as the Federal Reserve enters a cycle of interest rate hikes, the overseas macroeconomic heat gradually declined, and it was transmitted to the demand side. The decline in import and export trade volume has led to a decline in demand for sea freight capacity. The congestion situation of overseas ports on the supply side has eased, and the supply and demand of sea freight may be balanced. The SCFI freight index has gradually declined since January 7, 2022, and has fallen to 30% so far. We have read the annual reports of listed companies in 2021 and found that representative companies in some industries have mentioned that due to shortage of shipping capacity and high collection prices, they have been damaged. Standing at a node that may be the inflection point of the collection price, we reviewed the characteristics of the high points of the previous shipping cycle and explored the profits and stock price performance of downstream companies related to the inflection point of freight for reference by investors.
1. Looking back on 2021, the middle and downstream export-oriented industries were seriously damaged in the new round of shipping cycle
1.1. After the epidemic, overseas labor shortages, global supply and demand mismatch, exports and inflation jointly pushed up freight
Some countries and regions such as China have resumed work and production before the world, and trade has recovered rapidly. benefited from domestic epidemic prevention policies, and China led the way in resuming work and production. In March 2020, China's PMI returned to the level of boom and bust line, and export trade resumed growth trend, four months ahead of European and American countries.
Overseas flooding, boosting inflation and the shipping demand side soared. In 2021, the global macroeconomic fundamentals continued to improve. Against the background of quantitative easing of water-injected liquidity in European and American countries, the demand for commodities has gradually been released, and commodity volume and price have risen. As the transportation link of commodities in the middle of the commodities, the demand side has soared. Quantitative easing policies have injected currencies, driving up inflation. CPI inflation in European and American countries has continued to intensify since the beginning of 2021. The growth rate of US CPI in July 22nd was as high as 8.5%, and in June, the growth rate of EU EU reconciled CPI reached 9.6%.
Global port congestion has caused a new low for the lowest rate. In terms of supply, due to the spread of the epidemic, port labor is scarce, coupled with the release of consumer demand, global container transportation demand continues to be high, and the combined combination of multiple factors has led to global port congestion, and the accurate shift rate hits a new low. In December 2021, the GCSP comprehensive accurate shift rate was 20.50%, down 53 percentage points from the 2020 high.
1.2. Inadequate transportation capacity and high freight charges have serious impact on mid- and downstream export-oriented enterprises
21 companies whose annual reports are damaged are mainly concentrated in mid- and downstream export-oriented industries. selects industries that are suppressed by insufficient shipping capacity and high freight fees. We have traversed its 2021 report covering the company. The statistics clearly mention companies whose operating costs, profitability, and various expenses are suppressed by high shipping fees. There are 86 companies mentioned in the midstream machinery and equipment, power equipment, downstream automobiles, commerce and retail, household appliances, light industrial manufacturing and textile and clothing industries, accounting for 87%.
Since 2021, the gross profit margin of representative export-oriented companies has declined. mentioned in the report that among the top ten companies with market value suppressed by shipping, the household appliance industry accounts for a high proportion. Since 2020, the gross profit margin and net profit margin of representative companies have mostly shown a downward trend, and their profitability has declined.
1.3. The Federal Reserve entered a cycle of interest rate hikes, and the economic downturn in economic prosperity catalyzed a decline in freight rates
The weakening of the momentum of the recovery of the manufacturing industry has pushed BDI downward. html Global manufacturing PMI in June was 52.2, and the prosperity declined compared with 2021. In 2022, in order to cope with the inflation rate of up to 8.6%, the Federal Reserve raised interest rates by 25BP/50BP/75BP on March 17, May 4 and June 16 respectively, resulting in a contraction of overseas demand and a decline in commodity prices, driving the price of midstream shipping. However, in May, coal inventory in India's power plants was low, demand for coal increased, and dry bulk freight rates strengthened. The average BDI in June 2022 was 2077, a decrease of 57% from October 2021.
port congestion has eased, and the minimum shift rate hits the bottom and rebounds. The congestion problem of ports at reached its peak in 21Q3~Q4, and the punctual rate dropped to a freezing point of less than 20%. The congestion situation improved after the peak export season. The overall trend of the quasi-shift rate has risen since the beginning of this year. In July, the global GCSP comprehensive quasi-shift rate index has reached 27.27%, an increase of 10.2% from the lowest point.
dry bulk freight rates and container freight rates have fallen. dry bulk freight rate related index continued to decline, with the average CDFI comprehensive index in July being 1520, a month-on-month decrease of 9%; the average BDI index in July was 2077, a month-on-month decrease of 13%. On August 12, the Ningbo export container freight index was 2776, a decrease of 22% from the beginning of June; the Wuhan shipping export container freight index was 4066, a decrease of 14% from the beginning of June; the Shanghai export container freight index was 3563, a decrease of 15% from the beginning of June.
The prices of various ship types have declined to varying degrees. in terms of ship type, since May 25, the Cape of Good Hope has dropped by 85% to US$4,550 per day, the Panama has dropped by 47% to US$15,094 per day, and the super-sensitivity has dropped by 45% to US$16,571 per day.
2. Recalling the shipping cycle is closely related to the demand side
Shipping demand is difficult to predict and is susceptible to sudden events. In the book "Marine Economics", Dr. Martin Stopford divided the dry bulk cargo transportation industry from 1945 to 2007 into eight cycles, and analyzed the supply and demand of in the shipping market, and came to the conclusion that shipping supply is easy to predict, while shipping demand is mainly affected by the economic situation and trade demand, but occasional events will also have a huge impact on shipping demand, which increases the difficulty of pre-predictions.
Initially explore the supply and demand ends of shipping, we summarize the following rules: 1) Sea freight is the product of supply and demand balance. When the supply side shrinks, the market will recover in most cases. 2) Strong demand catalyzes the recovery of the shipping market, but if supply capacity expands and embezzles the positive effects of demand growth, it will instead trigger a recession in the shipping market. 3) Recession of demand often leads to depression cycles. 4) During high freight costs, economic recession or large-scale delivery of new ships often drives the emergence of a decline turning point.
Global economic prosperity and maritime trade volume have changed in the same direction in the long term. changes in the growth rate of maritime trade volume and the global real GDP growth rate are relatively synchronized, and the correlation coefficient between the two is 0.75. Among them, in 1975 and 1983, the world economic recession directly led to a depression in the maritime market.
Import and export amount peaked year-on-year and BDI growth rate. In January 1995, March 2000, January 2004, January 2011 and October 2021, the growth rate of import and export and shipping costs peaked simultaneously, and the growth rate of import and export peaked ahead of the growth rate of freight costs; during the period of rapid growth of world iron ore imports, BDI is mostly at the stage high.
3. According to the theoretical dimension, downstream operating costs rise in the upstream cycle of shipping and operating cash flow out of
The complete shipping cycle includes: in the first stage, the surge in trade demand stimulates the rise in shipping fees, and the rise in costs cannot stop the expansion of demand. In the second stage, the cost increase caused by the expansion of freight costs cannot be ignored, demand has declined and the ship supply has gradually been released, and the recovery of transportation capacity has led to a decline in freight costs. In the third stage, port inventory has increased, trade demand has weakened, and freight costs have accelerated downward. The first phase of shipping cycle transmits to the company's financial statements as follows:
1) Operating cost/sales expenses: 1 is uncertain factors such as the surge in sea freight costs, insufficient capacity, uncertain shipping schedules, etc., which have affected the export of large quantities of goods on time, greatly increasing the warehousing cost and transportation cost, and subsequent orders cannot fulfill their contracts normally. Second, the increase in sea freight costs will further push up the prices of imported raw materials and increase material costs.
2) Profit level: The impact of rising sea freight fees and raw material prices cannot be transmitted to the downstream in a timely and completely, the profit margin is squeezed, and the profit level is limited, which leads to a narrowing of gross profit margin.
3) Operating cash flow: The sharp rise in raw material prices and the surge in sea freight costs have prompted the company's operating cash flow to flow out significantly. freight will eventually be reflected in the payment of other cash items related to business activities. We selected the representative Haier Smart Home and Changhong Meiling , which are the home appliance industry. During the period of freight increase, the year-on-year growth rate of this sub-item is ahead of the total cash outflow of business activities.
4. Reviewing history, freight costs suppress the performance and stock prices of export-oriented companies
Sea freight costs and stock prices fluctuate in the same direction in the long term, and there may be divergence in the short term. During the economic boom period, demand growth drove the company's performance to improve and stock prices rose. At the same time, strong import and export demand drove the return of the shipping price index. Both stock prices and shipping prices rose, but the rise in freight costs suppressed the cost side of the company; as ship capacity gradually released and freight costs decreased, the cost pressure on the company will gradually ease. In the long run, the economic cycle and shipping cycle overlap high, and the stock price and shipping price fluctuate in the same direction; within one month after freight peaks, corporate costs will decrease. If the company's revenue does not decline sharply, the company's valuation may increase, and there will be a short-term divergence between shipping costs and stock prices.
below select the grain companies ADM and Bunge, iron ore companies Vale, BHP Billiton, and consumer goods company Costco, as representative companies, to review the impact of shipping prices on stock prices and gross profit margins.
Cereal Food Company: High freight costs suppress the company's gross profit margin, and freight costs and stock prices fluctuate in the same direction in the long run. As the second largest rural food companies in the world, the stock prices of BUNGE and ADM companies are positively correlated with the Baltic freight index (BDI) over the long period, with correlation coefficients reaching 0.34 and 0.35 respectively.
at the turning point of high freight downward, and the stock prices of the two companies rose more in the short term. BUNGE and ADM companies saw a phased decline when shipping costs reached a temporary high point, among which BUNGE's sales gross profit margin and freight costs were significantly negatively correlated; ADM companies' sales gross profit margin and freight costs had no obvious relationship overall, but at the high point of freight costs, the gross profit margin of sales declined significantly.
Iron ore company: The turning point of freight decline has short-term excess returns. selected Vale and BHP Billiton as representatives of iron ore import and export companies. The stock prices of the two companies were positively correlated with the Baltic shipping index (BDI) in the long-term period, and the correlation coefficients with BDI reached 0.56 and 0.10 respectively; while in the short-term period, the freight peaked in the turning point, most of the stock prices of the two companies showed an upward trend; Vale/ BHP Billiton's sales gross profit margin did not drop significantly during the period of high freight costs.
Consumer company: The stock price and freight rate are highly positively correlated, and gross profit margin and freight rate change in the opposite direction. selected Costco as the representative of consumer export companies. The company's stock price was positively correlated with the freight index of (CCFI) over the long period, and the correlation coefficient with CCFI was as high as 0.65; since 2005, Costco's gross profit margin and freight rates have been negatively correlated.
5. From the two dimensions of historical review and current prosperity, we explore the export-oriented industries with the increase in the "quantity" and "profit" during the downward period of freight costs
5.1. Historical review: Polyurethane and automotive parts repair elasticity and stability
In the five shipping downward cycles, according to 1) the probability of gross profit margin repair is >50%; 2) the probability of obtaining excess returns is >50%; 3) the conditions for overseas revenue to account for ≥40%, and the export-oriented sub-industry that has stable profitability repair and is easy to produce excess returns during the downward cycle of shipping.
5.1.1. The automobile chain attaches importance to tire dilemma reversal
Tire company put into production Southeast Asia to avoid "double anti-double" sanctions and realize the internationalization of the industrial chain. Since 2017, Europe and the United States have implemented anti-dumping and anti-subsidy policies on tire companies' exports many times. The tire leader avoids "double anti-double" sanctions through production capacity layout in Southeast Asia, Europe and other regions, and takes the opportunity to achieve globalization of the industrial chain, helping the company become an international first-tier brand. From the sales side, European factories such as Serbia are close to Europe, the main tire consumption place, which makes good use of local cheap labor while opening up the European market and alleviating the export pressure brought by high sea freight costs; from the cost side, laying out Southeast Asian factories such as Thailand and building a raw material supply chain will help reduce raw material and labor costs. On May 4, 2022, the EU's first-instance judgment revoked the "double anti-double" tax order against China, which is beneficial to domestic tire exports.
Domestic tire companies have comparative advantages in costs and their profitability has increased year by year. is subject to the high local labor costs, and the labor costs of Michelin Group account for 34.2% of its main business costs in 2021. The proportion of sub-item costs of domestic enterprises is not much different, among which labor costs account for 6% to 7%. Low labor costs empower fetal enterprises to have a comparative advantage in international competition. Since 2011, domestic tire companies have increased year by year, and their profitability has gradually strengthened. In addition to factors such as "double anti-double" sanctions and sea transportation tensions in 2021, net profit margins have declined to a certain extent. With the breakthrough in core technologies of domestic tire companies, the improvement of product quality and the deepening of globalization of the industrial chain, the gap between the brand with international leaders will narrow in the future, and the low labor costs will further improve the company's profitability.
main raw materials prices have declined. In July 2022, the average market price of natural rubber and carbon black N220 in Hebei was 10,600 yuan/ton and 10,300 yuan/ton, a month-on-month period of -1.3% and -1.1%. Among them, the Russian-Ukraine war eased, the price of coal tar showed a downward trend, the cost pressure of carbon black weakened, and the price of carbon black surged and fell back to . Under the seasonal cycle, new rubber production capacity at home and abroad has gradually been released, and rubber prices fluctuate and fall.
Domestic tire downstream demand continues to improve, passenger car sales continued to be high in July, and tire operating rate rebounded. passenger car sales maintained a high prosperity, with a total of 2.17 million vehicles sold in July, a year-on-year increase of 40%, and a growth rate of -1.45pct month-on-month.The tire operating rate in May declined due to the disturbance of the epidemic, but as the impact of the epidemic subsided and downstream demand improved, the tire operating rate rebounded. On August 12, the operating rates of all-steel tires and semi-steel tires were 59% and 64% respectively.
5.1.2. The polyurethane economy has been recovered rapidly, and the shortage of overseas TDI supply is good. Subsequent exports
htmlPolyurethane exports quickly recovered from high prosperity in June, and TDI and polymerized MDI exports have increased significantly. According to data released by the customs, TDI exports in June increased by 96% year-on-year; exports from January to June accumulated 2% year-on-year, with a growth rate of 11pct month-on-month, and the export growth rate turned from negative to positive, achieving an increase beyond expectations. In June, the export of aggregated MDI increased by 58% year-on-year; from January to June, the cumulative exports increased by 28% year-on-year, with a growth rate of 6pct month-on-month. Pure MDI exports in June increased by 18% year-on-year; exports from January to June accumulated 8% year-on-year, with a growth rate of 2pct month-on-month.
Domestic polyurethane downstream products have differentiated, MDI prices have declined, and TDI prices have rebounded and rebounded. As of August 16, 2022, the prices of TDI/polymerized MDI/pure MDI were 17050/15820/18600 yuan/ton, respectively, which was +8%/-2%/-9% from the end of July.
Overseas TDI production capacity supply is limited, and the TDI export prosperity is expected to continue to improve. On August 12, the 300,000 tons/year TDI device of Covestro Germany was suspended due to force majeure due to the leakage of chlorine gas , and supply is expected to resume after November 30. In addition, the 300,000-ton TDI device of BASF, Germany has been suspended for maintenance since the end of April and has not been restarted yet.
Energy/electricity prices continue to be high, and overseas polyurethane cost end is under pressure, which is beneficial to domestic exports. Overseas energy crisis is intensifying, energy/electricity costs continue to be high, coupled with the limited supply of overseas polyurethane, domestic TDI/MDI exports are expected to maintain a high prosperity.
5.2. Current prosperity: Exports in textile machinery, photovoltaics and other industries are expected to maintain a high prosperity
According to 1) The cumulative year-on-year exports of related commodities in June were ≥10%; 2) The exports of related commodities in June were ≥15% year-on-year; 3) The growth rate of related commodities in June increased month-on-month in May; 4) The overseas revenue of the secondary industry accounts for ≥35%, and the following export-oriented industries that maintain high prosperity were selected.
5.2.1. Textile manufacturing returns to Southeast Asia, driving the export of textile and garment equipment
Textile manufacturing industry returns to Southeast Asia, and textile and garment equipment exports grow rapidly. 22 cumulative export of sewing machinery from January to June 1.3 billion, an increase of 13.40% year-on-year, with a growth rate of 0.70% month-on-month; from January to June, with a export of textile machinery from January to June, with a growth rate of 10.00% year-on-year, with a growth rate of 5.20% month-on-month. By country, Vietnam and India are the main export places for sewing machinery in my country, with exports of US$224/207 million respectively, accounting for 13.10%/12.10% of China's export share. In addition, due to the return of textile manufacturing to Southeast Asia, sewing machinery exports Singapore , Indonesia , Cambodia , Malaysia , Myanmar, Thailand and other Southeast Asian countries increased significantly year-on-year, among which exports to Singapore, Cambodia and Myanmar grew by more than 50%.
5.2.2. Domestic and foreign demand resonates, solar cell exports/photovoltaic installed capacity continue to have a high prosperity
Against the backdrop of the increasingly severe energy crisis, solar cell exports continue to increase. TTF benchmark Netherlands natural gas futures prices continued to rise, reaching US$69.75/MMBtu on August 17; European electricity prices continued to rise, and as of August 14, the weekly average electricity prices in Britain, France and Germany remained at highs of 323/414/375EUR/MWh respectively. Against the backdrop of tight energy/electricity, the overseas photovoltaic market maintains a high prosperity. According to statistics from the General Administration of Customs, photovoltaic cell exports in June were US$4.5 billion, a year-on-year increase of 99% and a month-on-month increase of 6%; from January to June, photovoltaic cell exports were US$23.8 billion, a cumulative year-on-year increase of 97%, maintaining a high export growth rate.
Domestic power load is tight, and photovoltaic installed capacity is growing rapidly. On August 15, the Sichuan Electric Power Supply and Supply Scheduling Conference proposed that in order to cope with the shortage of electricity and ensure the use of residents, all industrial power users (including whitelist key guarantee enterprises) in the Sichuan power grid orderly power consumption plan will be fully shut down (except security load).The rapid growth of social electricity demand puts higher requirements on power loads. Coupled with the rise in energy prices and the national dual carbon demand, new energy installed capacity has achieved rapid growth. In June, the new capacity of photovoltaic installed capacity reached 7.17 million kilowatts, a year-on-year increase of 131%; from January to June, the cumulative new capacity of photovoltaic installed capacity reached 30.88 million kilowatts, a year-on-year increase of 137%.
6. Risk warning
freight rates drop less than expected;
industry prosperity is lower than expected;
epidemic risk;
macroeconomic downward risk.
This report contact person
Li Meicen [email protected]
Xu Chenyi [email protected]
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Note: The report in the article is excerpted from the Caitong Securities Research Institute that has publicly released research reports. For details on the specific report content and related risk warnings, please refer to the full version of the report.
Securities research report: "Reduced freight freight costs benefit segmentation-"Cost fallback" series 3"
External release time: August 23, 2022
Report release institution: Caitong Securities Co., Ltd. (Securities investment consulting business qualifications licensed by China Securities Regulatory Commission )
Analyst of this report : Li Meicen SAC Practice Certificate Number: S0160521120002
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