An analysis report projects that CSSC SHIPPING (03877) will report net profits attributable to shareholders of HK$2.16 billion, HK$2.30 billion, and HK$2.48 billion for the years 2025 to 2027, representing year-on-year growth rates of 3%, 6%, and 8%, respectively. The lower profit growth in 2025 is primarily attributed to the conclusion of certain financing lease and loan projects in the second half of 2024 and the first half of 2025, leading to a decline in associated revenue. Additionally, the retroactive application of the Pillar Two model starting in 2025 resulted in a tax expense provision of HK$140 million in the first half of 2025.
The company possesses several strengths, including counter-cyclical investment capability, leading operational efficiency, relatively low funding costs, and a high dividend distribution policy, with a payout ratio of approximately 40%. Calculations indicate the current share price corresponds to a projected 2026 dividend yield of about 7%. Based on a valuation of 1 times projected 2026 price-to-book (PB) ratio, a target price of HK$2.64 is derived, leading to an initial "Buy" rating.
Key points from the analysis are as follows:
**Diversified Business Structure** In the first half of 2025, the revenue contribution from operating leases, finance leases, loan services, and ship brokerage was 60%, 27%, 12%, and 1%, respectively. The company's focus on long-term leasing business provides certainty for future revenue growth. In terms of volume, the compound annual growth rate for both the net value of ship assets and the scale of lease receivables was 20% from 2020 to 2024. Regarding pricing, the calculated operating lease yield and finance lease yield for 2024 were 14.4% and 7.8%, respectively. Beyond long-term contracts, leveraging its professional industry expertise, the company deploys some owned and jointly-controlled vessels into the spot and short-term markets, generating flexible income. From 2021 to 2024, short-term operations contributed approximately 30% to profits.
**Leading Operational Capabilities** The company's fleet is characterized by diversity, high value, and a young average age, comprising 143 vessels by the end of the first half of 2025. According to data from Clarksons, as of September 2025, the company ranked 7th in ship asset value among Chinese leasing companies and 2nd among non-bank affiliated leasing firms. Only four Chinese shipping leasing companies cover all vessel types, and this company is one of them. It is also a leader in green transformation; by the end of September 2025, energy-efficient vessels accounted for 91% of its fleet, ranking it 2nd among the top ten lessors by vessel count. The average fleet age was 4.13 years at the end of the first half of 2025, lower than comparable peers. Newer vessels generally meet environmental policy requirements, have lower maintenance costs, and are more attractive to high-quality clients.
**Lower Funding Costs** The company maintains high credit ratings, with Fitch and S&P both rating it A- as of the first half of 2025. Its average funding cost was 3.1%, below the industry average. With the US Federal Reserve implementing three interest rate cuts in 2025, and given that most of the company's liabilities are denominated in US dollars, its average funding cost is expected to decline further.
Risk warnings include a potential downturn in the shipping industry, interest rate fluctuations, and geopolitical risks.