China Heavy Industries released its semi-annual performance report, and the performance was basically in line with expectations. In 2023H1, the company achieved operating income of 16.866 billion yuan, yoy +12.93%, and net profit of 192 million yuan, yoy +132.98%. From the perspective of signing new orders, the civil shipping sector is still the main driving force for the company's new orders. Furthermore, the quality of orders received by China Heavy Industries has been further improved, and the order cost per 10,000 DWT has risen to 49 million yuan. Currently, China Heavy Industries's main logic still revolves around the three points of “definite recovery in performance, strong upgrade in order structure, increase in shipping prices, leading industry, and relatively low valuation (PB).” Continue to maintain the “Highly Recommended” rating.
China Heavy Industries released its semi-annual performance report, and the performance was basically in line with expectations. In 2023H1, the company achieved operating income of 16.866 billion yuan, yoy +12.93%, and net profit of 192 million yuan, yoy +132.98%.
2023Q2's quarterly revenue was 10.043 billion yuan, yoy +13.85%; net profit for the return was 126 million yuan, yoy +119.64%.
By business structure, the company's marine transportation equipment revenue reached 4.81 billion yuan, yoy +6.1%, gross margin reached 1.07%, yoy+11.94 pct, turning loss into profit; deep-sea equipment and ship repair and modification revenue reached 3.04 billion yuan, yoy +117.1%; marine defense and marine development equipment revenue reached 2.24 billion yuan, yoy -7.7%; ship support and mechanical and electrical equipment revenue reached 3.79 billion yuan, yoy +12.1%; strategic emerging industries and other revenue reached 2.53 billion yuan, yoy- 6.9%
Judging from the structure of new orders, marine transportation equipment (civilian ships) is still the main driving force for the company's new orders.
In the first half of the year, the company signed a total of 37.55 billion yuan in new orders, yoy +14.5%, of which 17.33 billion yuan was signed for marine transportation equipment, yoy -6.41%, but overall it remained at a high level (and in fact, Dalian Shipbuilding Industry continued to gain strength after July). In addition, marine defense and marine development equipment grew significantly. New orders signed in the first half of the year reached 7.88 billion yuan, yoy +3156.8%.
By the end of June, the company's handheld orders totaled 131,526 billion yuan, yoy +20.3%, of which handheld orders for marine transportation equipment reached 67.161 billion yuan, yoy +37% (the fastest growth rate among all businesses), accounting for 51%. This shows that the logic of a major civil ship cycle is being interpreted within China Heavy Industries, a leading shipbuilding company.
Further analysis has further improved the quality of orders received by China Heavy Industries. The company's order value per unit tonnage was 18 million yuan in 2018, and this indicator rose to 45 million yuan in 2022, significantly leading the increase in the average shipping price in the industry. In 2023H1, the order value of China Heavy Industries per unit load tonnage increased to 49 million yuan (while the unit load tonnage cost of the completed order was only 316 million yuan, that is, it is still delivering low-priced orders from 2018 to 2019, corresponding to a gross profit margin of 1%), indicating that the company's order structure continues to upgrade, and subsequent profit margins are expected to continue to expand.
Judging from the subdivision of shipyards taking orders. According to Clarkson data, as of August 2023, Dalian Shipbuilding Industry's handheld orders were only 1.44 million CGT. Compared with the company's revised production capacity of over 1 million tons, it still has a large order acceptance capacity. According to Clarkson's forecast, the gross tonnage delivered by Dachuan Group in 2023 is about 196,000 CGT, while in 2024 it will rise sharply to 382,000 CGT, which indicates that 2024's performance will be more promising.
At the same time, industry-side order volume and price information continued to improve. According to the China Shipbuilding Industry Association from January to July 2023, the completed shipbuilding volume nationwide was 2.499 million DWT, an increase of 15.6% over the previous year; the number of new orders received was 44.76 million DWT, an increase of 74% over the previous year. According to Clarkson data, as of July 2023, the new ship price composite index reached 172.3 points, an increase of 0.8% over the previous year, an increase of 6.7% over the previous year, and a continuous increase of 7 months, reaching a new high since 2009. At the same time, the strength and international influence of Chinese shipbuilders has increased markedly. The global share of newly signed and handheld orders in July continued to be high. At the end of July 2023, handheld orders from Chinese shipyards accounted for 52.9% of the global market share; the cumulative number of new orders signed in January-July accounted for 67.7% of the global market share. It is expected that China's shipbuilding market share will continue to be high in the future.
Maintain a “Highly Recommended” investment rating. China Heavy Industries' Q2 performance is generally in line with expectations, and the company's new order data is even more impressive, showing the logic of a sharp increase in volume and price. The fundamental recovery of the shipping sector is our main recommended focus this year. Currently, China Heavy Industries's main logic still revolves around the three points of “definite recovery in performance, strong upgrade in order structure, increase in shipping prices, leading industry, and relatively low valuation (PB).” We expect China Heavy Industries' net profit for 23/24/25 to be 13.1/47.1/7.53 billion yuan, respectively. Continue to strongly recommend China Heavy Industries!
Risk warning: The bulk carrier shipping market continues to be sluggish, and repairs fall short of expectations; the increase in internal production efficiency of China Heavy Industries falls short of expectations; raw material prices continue to rise and labor costs continue to rise; exchange rate fluctuations risk; the US dollar continues to strengthen; predictions about the industry cycle are not consistent with reality.