Core views:

Event: On December 7, the company issued the “Notice on the Implementation of Daily Related Transactions in 2023 and Expected Status of Daily Related Transactions in 2024”. It is estimated that the maximum sales amount of products between the company, China Shipbuilding Group and other affiliates in 2024 will be 24.2 billion yuan (excluding tax), an increase of 46.67% over the previous year.

Comment: It is expected that related transactions will increase dramatically, and the recovery of the shipping sector will soon usher in performance implementation. According to the company announcement, it is estimated that the company's top five sales products/labor-related transactions in 2024 will be Hudong Zhonghua Shipbuilding Co., Ltd., Jiangnan Shipbuilding (Group) Co., Ltd., China Shipbuilding (Group) Co., Ltd., CSIC Huangpu Wenchong Shipbuilding Co., Ltd., and Shanghai Waigaoqiao Shipbuilding Co., Ltd., with related transaction amounts of 25.07/25.03/21.90/15.53/1,447 billion yuan, respectively, accounting for 10.44%/10.43%/9.13%/6.47%/6.03%/6.47%/6.03%, 6.03%/6.03%, 6.03%/6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03%, 6.03% The amount of related transactions is expected to increase significantly during the same period in 2023. Prices in the new shipbuilding market continue to rise, and the trend of insufficient supply and demand continues. According to Clarkson, the new shipbuilding price index continues to rise, and the nominal new shipbuilding price index is less than 10% from the highest value in history. Considering inflation and labor costs, there is still plenty of room for ship prices to rise; shipbuilding production capacity continues to shrink. Due to high barriers to environmentally friendly shipbuilding technology and the trend of large-scale ships, new shipbuilding orders are concentrated on leading shipbuilding companies. As China's share of shipbuilding continues to rise, new ship orders and pricing centers may continue to rise. The company benefited from the low-carbon transformation of shipping and brought about an increase in the penetration rate of high-value dual-fuel engines. The increase in the shipbuilding market share of Chinese shipbuilding companies boosted the growth of internal orders. Combined with high barriers to low-speed engine production capacity construction, the leading pattern was easy to guard and difficult to attack. With increasing expectations of the launch of high-priced orders, the company is expected to usher in an inflection point in performance.

Profit forecast and investment advice: The company's 23-25 EPS is expected to be 0.28, 0.68, and 1.19 yuan/share, respectively. Considering the company's leading position in naval power, we maintained a reasonable value of 24.12 yuan/share and maintained an “increase in holdings” rating.

Risk warning: risk in the shipping industry, risk in the automotive industry, risk of price fluctuations of major raw materials, risk of exchange rate fluctuations.