China heavy Industry released its 23Q3 quarterly report, with operating income of 30.302 billion yuan, an increase of 16.72% over the same period last year, and net profit of-111 million yuan, compared with-1.25 billion yuan in the same period last year. Affected by the order delivery progress and raw material prices, exchange rate fluctuations, the company's overall performance is lower than expected. In spite of this, so far this year, China heavy Industry has done well in the control of key expense rates and the strength of new orders. We are still optimistic about the leading value of Chinese heavy industry in the long-term process of ships. Continue to maintain the highly recommended rating.

The company released its three-quarter report in 2023, with operating income of 30.302 billion yuan, an increase of 16.72% over the same period last year; net profit of-111 million yuan, compared with-1.25 billion yuan in the same period last year; and non-return net profit of-245 million yuan, compared with-1.449 billion yuan in the same period last year. From the key ratio, Q3 gross profit margin 6.75%, year-on-year increase of 1.34pct, month-on-month increase of 0.2 pctten Q3 net profit rate of-2.23%, turning negative again since Q1.

The company's third-quarter results were lower than expected. The reasons mainly include: 1) low gross profit margin, the company's civil ship sector takes order delivery as the time point for revenue recognition, and the company is still delivering lower-priced orders from 1920 to 1920; 2) most of the delivery orders started construction around 2021, and the price of steel purchased centrally is higher, pushing up shipbuilding costs; and 3) due to exchange rate fluctuations, interest income has decreased significantly in Q3 compared to Q2.

Nevertheless, we also observed some bright spots in the company's performance: 1) the key expense rate of Q3 company has decreased, sales expense rate 0.51%, Q2 down 0.15pct, management expense rate 8.14%, Q2 down 1.23pct, R & D expense rate 2.02%, Q2 down 1.16pct. 2) the newly signed orders are relatively strong. According to the statistics of the China Shipbuilding Industry Association, Dalian Shipbuilding heavy Industry ranks third in the country in the first three quarters, and is also the leading shipyard in China Shipbuilding Group. According to Clarkson data, the 23-year delivery volume of Dalian Shipbuilding heavy Industry is only 103,000CGT. In contrast, 24-year delivery is expected to reach 242000 CGT. According to the financial data, the contract debt of China heavy Industry Q3 at the end of the year was 48 billion yuan, while that of Q2 was only 38.9 billion yuan, and that at the end of 22 was only 35.4 billion yuan, indicating that the company's hand-held orders continued to grow.

Maintain the "highly recommended" investment rating. We have lowered the follow-up profit forecast of China heavy Industry and estimated that the annual net profit of homecoming in 23-24-25 will reach 3.50.84 billion yuan respectively. Considering that the ship is a long-period plate, the release performance process of the relevant listed companies is different. We believe that the lower-than-expected short-term performance does not affect the judgment of long-term performance release and newly signed orders. Recently, the share prices of the shipping sector have continued to adjust, and the valuations of the relevant leading stocks have fallen back to the margin of safety. We continue to strongly recommend China heavy Industry!

Risk hints: the bulk carrier shipping market remains in the doldrums and repairs are not as expected; the internal production efficiency of Chinese heavy industry is not as expected; raw material prices continue to rise, labor costs continue to rise; exchange rate fluctuations risk; the US dollar continues to strengthen; the forecast for the industry cycle is not consistent with the reality.