Key points of investment
China Heavy Industries is the core leader in the domestic marine development equipment field. The military products field has advanced marine defense equipment R&D, design and manufacturing capabilities. The civilian goods sector is a world-renowned developer and supplier of marine transportation equipment, marine development equipment, and marine research equipment. In the first half of 2023, the company achieved operating income of 16.866 billion yuan, an increase of 12.93% over the previous year; it achieved net profit attributable to the parent company of 192 million yuan, turning a loss into a profit.
Expense rates have declined, and gross profit has improved drastically. The gross margin for the first half of 2023 was 10.27%, up 4.72 pct year on year, management expense ratio of 13.62% decreased by 1.86 pct year on year, sales expense ratio of 0.94% year on year fell 0.91 pct year on year, R&D expense ratio 3.17%, down 0.34 pct year on year. The company's net profit margin was 1.07%, an increase of 5.35 pct over the previous year, a significant improvement.
In the first half of 2023, we were able to receive bulk orders for the main ship models. Tankers have performed well in receiving orders, receiving a total of 1.47 million DWT orders for various types of tankers, accounting for 41.6% of the total number of operating orders received in the first half of the year. Adhering to the middle and high-end transformation strategy, vigorously promoting green and high-end ship management orders, and achieving continuous orders for middle and high-end ship types such as LNG vessels.
Adequate orders in hand continue to be released. At the end of June 2023, China Heavy Industries ordered 16.781 million DWT. The proportion of middle- and high-end ships rose sharply, and the order structure was optimized. The marine transportation equipment business has received 17.3 billion yuan in new orders. Dalian Shipbuilding has accepted a contract for the construction of 4 large 175,000 cubic meter LNG ships. Currently, it has 175,000 cubic meter large LNG ships, reaching 8.
Dalian Shipbuilding and Greek shipowners signed 10 115,000-ton tankers; Beihai Shipbuilding completed a batch order for 4 210,000 ton bulk carriers, with 33 orders for such vessels, with the highest market share in the world. Wuchang Shipbuilding undertook 4 18,500 DWT oil/chemical tankers, 2 9200 DWT stainless steel chemical tankers, and 3 13,000-ton deck carriers, all of which received batch orders.
Continued breakthroughs have been made in the field of ship support. Dalian boat push undertakes 2+2 174000 meters? Double tail fin propeller manufacturing contract. Jiang Zeng Heavy Industries broke through the “stuck neck” technology in the field of hydrogen fuel cells, and the HC08 hydrogen fuel cell air compressor independently developed passed the test. The hydraulic cylinder system for the FPSO project developed by Zhongnan Equipment successfully passed customer acceptance and signed the first boat liner order.
The field of mechanical and electrical equipment continues to win bids. Chongqing Changzheng won the bid for China Railway Group's C70E general convertible car and X70 special container flat car for a total of 1,700 vehicles. Jiang Zeng Heavy Industries undertook the contract for the first R123 heat pump compressor. Zhongnan Equipment undertook an overseas oil drilling, testing and mining equipment contract, and won the bid for the Jiangjihuai Project Shushan Double Line Lock and the Dongli River First Line Lock Renovation Project.
The strategic emerging industry sector continues to innovate. In terms of marine clean fuel supply systems, Qingdao Shuangrui broke through high-pressure marine LNG gas supply system (FGSS) technology; in terms of energy saving and environmental protection, the Qingdao Shuangrui desulfurization industry achieved large-scale development; in the field of intelligent equipment, seven holdings continued to deepen construction machinery coating projects and robot integration projects in the auto parts industry, participate in automatic welding production lines for new energy lightweight vehicle bodies, and maintain supporting advantages for localized substitution in high-end industries such as gas engines and nuclear power.
[Investment advice]
The “increase in holdings” rating is based on the increasing demand for marine defense equipment in the military sector and the demand for marine transportation and development equipment in the civilian goods sector. We predict that the company's revenue for 2023/2024/2025 will reach 520.3/6179/73.82 billion yuan, respectively. We predict that the company's net profit for 2023/2024/2025 will reach 4.11/6.69/1,037 million yuan respectively, corresponding EPS of 0.02/0.03/0.05 yuan, and corresponding PE 232/142/92 times, respectively.
[Risk Reminder]
Demand for defense and military industry falls short of anticipated risks
Increased competition in the industry affects gross profit risk