Event

On March 29, China Shipbuilding Defense issued a major asset restructuring suspension notice, adjusting the previous major asset restructuring plan. The major asset restructuring plan is proposed to be adjusted as follows: the proposed underlying assets are 100% equity of Hudong heavy Machinery Co., Ltd., 100% equity of China Shipbuilding Power Co., Ltd., 51% equity of China Shipbuilding Research Institute Co., Ltd., and 15% equity of Shanghai China Shipbuilding Mitsui Shipbuilding Diesel engine Co., Ltd.; the proposed assets are part of the equity of Guangzhou Shipbuilding International and Huangpu Wenchong held by the Company. The other party intends to change to China Shipping Group, etc., and this transaction constitutes a related party transaction. The mode of transaction is asset exchange, which no longer involves issuing shares to purchase assets.

Brief comment

On March 29, China Shipbuilding Defense issued a major asset restructuring suspension notice, adjusting the previous major asset restructuring plan. The major asset restructuring plan is proposed to be adjusted as follows: the proposed underlying assets are 100% equity of Hudong heavy Machinery Co., Ltd., 100% equity of China Shipbuilding Power Co., Ltd., 51% equity of China Shipbuilding Research Institute Co., Ltd., and 15% equity of Shanghai China Shipbuilding Mitsui Shipbuilding Diesel engine Co., Ltd.; the proposed assets are part of the equity of Guangzhou Shipbuilding International and Huangpu Wenchong held by the Company. We believe that this asset restructuring effectively prevents the company from continuing the risk of losses. China Shipping Defense lost 1.86 billion yuan in 2018, and the injection of profitable assets such as Hudong heavy Machinery will help to enhance the profitability of listed companies. At the same time, it also helps to improve the securitization rate of group assets.

After the reorganization, the main business of China Shipping Defense will be changed and will become the power asset platform of China Southern Shipping Group. Before this asset reorganization, the company has two major subsidiaries, Guangzhou Shipping International and Huangpu Wenchong, covering four major sectors: defense equipment, ship repair, marine engineering and non-ship business. With the purchase of the original assets, the two main power assets of Shanghai East heavy Machinery and China Shipbuilding Power have become wholly-owned subsidiaries of China Shipbuilding Defense. In addition, Hudong heavy Machinery also holds a 49 per cent stake in the China Shipbuilding Power Research Institute and a 51 per cent stake in Shanghai Zhongshan Mitsui. Generally speaking, through this asset restructuring, the positioning of the platform of the listed companies of Southern Shipping has become clearer. China Shipping Defense covers the two most important power assets of the Group and has become its main power asset platform.

The company's main business change, to become the South Shipping Group's power assets platform. Hudong heavy engine business is mainly low-speed engine production, the main products include high-power medium-speed and low-speed diesel engines; China ship power business is mainly medium-speed engine production, including part of low-speed engine business; China Shipbuilding Mitsui's main products are low-speed diesel engines. China Shipbuilding Power Research Institute focuses on the key technologies of low-and medium-speed diesel engines. This asset restructuring has changed the company's main business. China Shipping Defense will cover the two most important power assets of the group in the future and become its main power asset platform.

This restructuring will create loss-making assets and inject profitable assets, which will help to improve the performance of the company. This asset restructuring rushes out the original loss-making assets Guangzhou Shipping International and Huangpu Wen, and places them into two profitable assets, Hudong heavy Machinery and China Shipbuilding Power. China Shipping Defense lost 1.86 billion yuan in 2018, of which Guangzhou Shipping International and Huangpu Wenchong each lost more than 1 billion yuan. In 2018, Hudong heavy Machinery achieved operating income of 4.2 billion yuan and net profit of 222 million yuan, while China Shipbuilding Power achieved operating income of 1.46 billion yuan and total profit of 5.5 million yuan in 2017. Zhongshan Mitsui has an operating income of 2.092 billion yuan and a net profit of 95 million yuan in 2018. Through asset restructuring and replacement, the company buys out loss-making assets and places profit-making assets, which is conducive to improving profitability.