COSCO SHIPPING Energy Transportation’s 1H26 preliminary results show quarter-on-quarter improvement slightly better than expected

Overview

This report reviews the preliminary 1H26 performance of COSCO SHIPPING Energy Transportation. The company expects 1H26 net profit of RMB 4.5 billion, up 141% year-over-year; implied 2Q26 net profit is RMB 2.327 billion, doubling year-over-year and up 7% quarter-on-quarter, slightly above Morgan Stanley’s expectation of RMB 2.2 billion. The report notes that although heightened geopolitical tension caused some vessels to be delayed in the Gulf and international product tanker and domestic petroleum freight rates remained soft, which diluted quarter-on-quarter improvement, strong tanker rates remain the core earnings driver.

Core views

Core views are constructive: first, 1H26 tanker rates were strong, driving a major earnings expansion; second, average TCE on TD15 (West Africa to China) and TD22 (US Gulf to China) rose 180% and 170% year-over-year, respectively, in 1H26; third, affected vessels cleared the Strait of Hormuz safely before the end of June, so if traffic returns to normal, effective utilization may improve in 3Q26; fourth, if tanker demand is stronger than expected or remains elevated longer, FY26 earnings face upward revision risk.

Analysis framework

The report uses preliminary earnings vs. Morgan Stanley expectations as the main framework, and assesses earnings leverage and valuation through tanker route TCE, vessel utilization, geopolitical disruptions, OPEC+ output, sanctions on shadow fleets, and tight VLCC supply. Valuation is based on a price-to-book framework, with bull, base, and bear scenarios weighted by probabilities.

Methodology notes

• Valuation methodsprice/book probability-weighted scenario valuation

  P/B scenario-weighted valuation

  1138.HK uses price-to-book valuation and applies probability weights of 25% bull, 60% base, and 15% bear. The report states the positive skew is driven by tight VLCC supply, stronger sanctions on shadow fleets, and continued OPEC+ output growth.

• scenario_analysisbull/base/bear P/B multiples

  Bull/base/bear P/B multiples

  For 1138.HK, 2027e target P/B multiples are base 1.9x, bull 3.7x, and bear 1.0x. For 600026.SS, target P/B multiples are bull 5.6x, base 2.5x, and bear 1.2x, with an A/H premium scenario included.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• COSCO SHIPPING Energy Transportation (1138.HK)

  Primary covered name, H-share

  Strengths

  1H26 earnings rose sharply year-over-year; 2Q26 implied net profit exceeded expectations; the target price versus close price indicates substantial upside; and tanker rates are strong.

  Weaknesses

  Quarter-on-quarter improvement is moderated by vessels stranded in the Gulf and weak international product and domestic oil freight rates.

  Comparison

  Rating is Overweight and industry view is In-Line. Compared with the current price of HK$13.08, target price HK$26.00 implies about 99% upside.

  Risks

  Weak global growth could reduce oil demand, OPEC oil output may fall short of expectations, and shadow fleets may return.

• COSCO SHIPPING Energy Transportation (600026.SS)

  A-share mapping ticker of the same company

  Strengths

  Benefiting from the same tanker cycle and earnings improvement logic; valuation framework includes an A/H premium scenario.

  Weaknesses

  A-share valuation is also affected by changes in the A/H premium.

  Comparison

  For 600026.SS, the report applies target P/B multiples and an A/H premium assumption: bull, base, and bear A/H premiums are 45%, 30%, and 15%, respectively.

  Risks

  Oil output lower than expected and compression of the A/H premium.

Key data

• 1H26 Expected Net ProfitRmb4.5bnUp 141% year-over-year on a restated basis.
• 1H26 Expected Recurring Net ProfitRmb4.4bnUp 148% year-over-year.
• 2Q26 Implied Net ProfitRmb2,327mnDoubled year-over-year, up 7% quarter-on-quarter, and 6% above Morgan Stanley’s expected Rmb2.2bn.
• Average TCE of TD15+180% YoYWest Africa-China route, cited by management as one of the earnings drivers.
• Average TCE of TD22+170% YoYUS Gulf-China route, jumped sharply year-over-year in 1H26.
• 1138.HK Target PriceHK$26.00July 10 close was HK$13.08, implying roughly 99% upside.
• Rating and Industry ViewOverweight / In-LineRating: Overweight, industry view: In-Line.

Impact & implications

The slightly better-than-expected earnings result strengthens the investment case for improving tanker cycle conditions and earnings leverage at COSCO SHIPPING Energy Transportation. In the near term, if traffic around the Strait of Hormuz normalizes, improved vessel utilization in 3Q26 could provide additional earnings support. In the medium term, tight VLCC supply, sanctions on shadow fleets, OPEC+ output growth, and freight-distance shifts are expected to continue influencing rate and valuation sensitivity.

Risks

• Global economic weakness leading to weaker oil demand.
• OPEC oil output falling short of expectations.
• A return of shadow fleets could ease capacity constraints.
• International product tanker and domestic oil freight rates remaining soft could continue to weigh on realized rates.
• A/H premium compression could affect the valuation of 600026.SS.

What to watch

• Whether vessel utilization in 3Q26 improves as traffic returns to normal.
• The impact of Strait of Hormuz and related geopolitical disruptions on tanker routes and rates.
• The persistence of TCE on key routes such as TD15 and TD22.
• Changes in OPEC+ output and the extent of demand support for crude transportation.
• The intensity of sanctions on shadow fleets and progress in scrapping older vessels.
• Whether FY26 earnings are revised upward if tanker demand is stronger than expected or lasts longer.