J.P. Morgan: COSCO Shipping’s third-quarter profit rises eighty percent: Higher freight rates boost earnings, with focus on trans-Pacific routes in the fourth quarter

How much did third-quarter results exceed expectations?

COSCO Shipping’s third-quarter revenue was 75.7 billion yuan, up about 30% year on year; net profit was 17.2 billion yuan, up about 80%. Both substantially exceeded JPMorgan and market consensus estimates.
Net profit for the first three quarters reached 30.6 billion yuan, up 13% year on year, exceeding JPMorgan’s previous full-year forecast. Over the past three months, the market consensus forecast for the company’s full-year 2026 earnings has been raised by about 40%.

The group’s third-quarter container volume rose 4.5% year on year, while route revenue increased 31%, corresponding to an increase of about 25% in revenue per twenty-foot equivalent unit. The trans-Pacific route saw the strongest gains: revenue rose 61% year on year and revenue per twenty-foot equivalent unit increased about 43%.
Price increases and unit cost control lifted the operating margin to 26.7%, about 10.8 percentage points higher than a year earlier; gross profit rose 67% year on year to 24 billion yuan. This occurred against a backdrop of rising fuel costs and higher expenses from continuing supply-chain disruptions.

Management said spot freight rates on major routes were stable to firm, and demand on trans-Pacific and Southeast Asian routes was resilient. Port congestion and Red Sea diversions continued to absorb effective capacity, easing supply pressure from the high ratio of ships on order to the existing fleet. Management expects healthy volume and continued support for margins in the fourth quarter.
About half of Asia-Europe route volume is carried at contract rates, so it takes time for the summer rise in spot rates to be reflected in revenue. A key question for investors is whether the increase in revenue per container on trans-Pacific routes can continue into the fourth quarter.
JPMorgan also noted that spot freight rates could fall if the industry relaxes capacity discipline and competition for market share triggers a price war. Port fees related to the US 301 policy will also increase the company’s operating costs.

Third-quarter operating cash flow was 15 billion yuan, up 67% year on year; for the first three quarters it was 47.9 billion yuan, up 20% and about 17 billion yuan higher than net profit for the same period. JPMorgan attributed this to improved earnings quality and working capital management.
Management continues to focus on a dividend payout ratio of about 50%, while advancing share buybacks and directing capital expenditure toward new ships and green fleet renewal. JPMorgan maintained its Overweight ratings on the A and H shares, with target prices of 22 yuan and 21 Hong Kong dollars, respectively.