Shares in tanker giant China Merchants Energy Shipping (CMES) surged by more than 8% on Tuesday after the company revealed strong preliminary results for 2019 and last quarter.
The Shanghai-listed company - which owns around 50 VLCCs - closed at CNY 6.89 per share, up from CNY 6.37 last Friday. Monday was a public holiday in China.
Late last week, CMES said its net profits for the first quarter would amount to somewhere between CNY 1.2bn ($170m) and CNY 1.4bn ($200m), compared with CNY 281m in the same period of 2019.
Part of state conglomerate China Merchants Group (CMG), CMES is the world’s largest VLCC owner while operating a large valemax fleet, Clarksons data shows.
“The VLCC market has rebounded strongly since the final quarter of 2019, and we fixed several consecutive voyage contracts for longhaul trades at high rates in December and early-2020,” CMES said.
The strength more than offset low earnings in the dry bulk market, where shipping demand was hit by seasonal weakness and the coronavirus pandemic, according to CMES.
Better than expected
“The first-quarter performance exceeded our expectation because the strong gains in VLCC rates,” China International Capital Corp said.
“In the second quarter, VLCC rates will stay high amid volatile market conditions. There should be strong improvement in earnings versus the period between April and June in 2019.”
Preliminary results showed net profits of CMES amounted to CNY 1.61bn last year, up 38.2% from the level seen in 2018.
Revenues rose to CNY 14.6bn from CNY 10.9bn.
The company said it benefited from higher profits of its VLCC operation, despite having booked an CNY 541m impairment on depreciation of its dry bulk assets.
“The results shows CMES’ earnings have spiked since the fourth quarter of 2019. The strength may well last into this quarter due to the strong VLCC market,” Huachuang Securities said.
Strong outlook
On a full-year basis, the Chinese brokerage predicts net profits of CMES will reach CNY 5.05bn in 2020 and CNY 5.6bn in 2021.
CMES in the process of taking over the dry bulk and LNG assets of former Sinotrans & CSC group firms for CNY 6.57bn as part of the intra-group restructuring of CMG.
Pending final approval from the Chinese central government, the deal will transfer 75 bulkers and interests in five Yamalmax LNG carriers to CMES.
The company is due to issue the full yearly report for 2019 as well as final results for the first quarter on 30 April.
