COSCO Shipping Holdings Plummets 6% Despite Exceeding Earnings Expectations: Are Analysts Embarrassed?

One frustrating aspect of stock trading is when positive news emerges but the stock price falls instead.

Today, COSCO Shipping Holdings (601919), a leading company in the shipping industry, opened with a sharp drop of over 6%. As of press time, the decline narrowed to around 4%. Data from Tonghuashun shows that more than RMB 2.9 billion of main funds flowed out significantly.

The decline of COSCO Shipping Holdings also led to a collective downturn in the shipping sector, with companies such as Zhonggu Logistics and Ningbo Shipping following the downward trend.

Notably, there has been no negative news regarding COSCO Shipping Holdings; on the contrary, positive developments were reported yesterday. On the evening of July 7, COSCO Shipping Holdings released an earnings forecast, predicting a net profit of approximately RMB 37.093 billion for the first half of this year. The net profit for the second quarter is estimated at about RMB 21.6 billion.

This figure has exceeded market expectations. Earlier today, many institutions expressed optimism, believing that COSCO Shipping Holdings still has room for further growth.

CITIC Securities disclosed a research report maintaining a 'Buy' rating for COSCO Shipping Holdings, with a target price of RMB 38. Morgan Stanley stated that COSCO Shipping Holdings’ second-quarter earnings forecast was robust. Given the anticipated peak demand season, the container shipping market is expected to remain highly prosperous over the next 2-3 months, which could drive the stock price higher. They raised their target price for the A-shares by 52% to RMB 37.2.

However, judging from the actual performance of the stock price, the market seems to have contradicted the expectations of institutional investors.

In a certain stock discussion forum on a securities platform, many netizens believe that this is a case of 'good news priced in,' and some even argue that the risks of buying at this point outweigh the potential returns.

The core reason behind this round of share price increase for COSCO Shipping Holdings isDue to the impact of the pandemic, global shipping prices surged, allowing shipping companies to generate enormous profits.

However, one point has been overlooked: the shipping industry is inherently cyclical, and COSCO Shipping Holdings is, at its core, a cyclical stock.

Going back more than a decade, the highest share price of COSCO Shipping Holdings reached 67.84 yuan in 2007. Later, due to a downturn in the shipping industry, the company entered a prolonged downward trajectory, with the maximum decline exceeding 80%. It was not until 2020 that the stock price of COSCO Shipping Holdings once again entered an upward trend, yet it still has not surpassed the highs seen more than a decade ago.

Companies similar to COSCO SHIPPING Holdings include Sany Heavy Industry (600031) and Genvict Technologies (002869).

Sany Heavy Industry is a representative of cyclical companies. From 2016 to 2020, the construction machinery industry experienced rising prosperity, with Sany Heavy Industry's performance continuously growing and its stock price increasing several times over. However, this year, due to market expectations of a downturn in the construction machinery industry, the company's stock price has been on a sustained decline, with five consecutive negative monthly performances and an accumulated drop of over 40%.

Genvict Technologies is a representative of companies experiencing explosive profit growth.

Benefiting from a specific document—the 'Notice of the General Office of the State Council on Printing and Distributing the Implementation Plan for Deepening the Reform of the Toll Road System and Eliminating Provincial Boundary Toll Stations on Expressways'—a surge in ETC users caused Genvict Technologies' performance to soar dramatically. In 2019, revenue increased by 373.49% year-over-year, and net profit attributable to parent company shareholders surged by 3942.96%. That same year, Genvict Technologies' stock price rose more than fivefold, emerging as a dark horse.

However, entering 2020, Genvict Technologies' performance growth rate slowed significantly, with revenue decreasing by 45.33% year-over-year and net profit attributable to parent company shareholders declining by 27.95%. From a stock price trend perspective, the company's value has been halved.

When a company’s performance peaks or the industry’s prosperity declines, it signals the arrival of risks.

Author of this article: Yang Lei; Editor: Xiaoshigui

Disclaimer

This article contains content related to listed companies and represents the author's personal analysis and judgment based on information publicly disclosed by these companies in accordance with their legal obligations (including but not limited to interim announcements, periodic reports, and official interactive platforms). The information or opinions contained herein do not constitute any investment or other business advice. Market Value Observer assumes no responsibility for any actions taken as a result of adopting the content of this article.

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