Core views:
Defense assembly leaders have entered the main business focus stage, and civil-military integration is developing steadily. China Shipbuilding Defense is China Shipbuilding Group's only “A+H” stock listing platform. According to the company's annual report, it controls the shipyard Huangpu Wenchong, and also holds 41.02% of Guangzhou Shipbuilding International's shares. Huangpu Wenchong is the country's core military production base. It has the highest market share of military ships, special ships, and official ships. Commercial vessels are mainly regional container ships and bulk carriers. As high-priced orders and high-value-added ships enter the delivery rhythm, the company's performance has shown an improving trend, which is expected to usher in an inflection point in profit release.
Shipbuilding industry: Aging+environmental protection demand is in the long-term upward channel, and leading shipping companies have control over pricing.
Bulk cargo and oil tankers are at the beginning of a new cycle of replacement. The urgency of environmental protection transformation has increased over time, and it has already entered the stage of industrialization explosion. Replacement+environmental demand resonates, compounded by supply-side asynchronous recovery to raise the voice of leading shipping companies, and the competitive advantage of Chinese shipyards is gradually highlighted and sustainable. The two major short-term inflection points of the industry's profit recovery and restructuring and integration have been reached. Since the shipbuilding industry entered the recovery phase in '21, Chinese, Japanese, and South Korean shipbuilders have emerged from years of losses, and the gradual pace of group restructuring is expected to drive sector valuations and repricing.
The three core factors determine the company's leading pace of recovery: the proportion of high-priced ships, the proportion of high-value ships, and the share of revenue recognition as a percentage of completion. According to the annual report, the company's share of contract revenue confirmed according to the completion percentage is between 80% and 100%, and new orders received during the recovery phase enter the delivery confirmation rhythm faster. The proportion of high-priced ships delivered by the company in the future and the proportion of ships with leading price increases (container ships, PCC, MPP, etc.) are all leading, and the core behind this reflects the improvement in the company's competitiveness.
Profit forecasting and investment advice. We expect the company's net profit to reach 3.2/11.3/1.62 billion yuan in 23-25, and net assets per share to reach 11.2/12.0/13.2 yuan. Referring to comparable companies and combined with the company's historical valuation, the company was given a 2024 PB valuation of 2.5x, corresponding to 30.1 yuan/share; considering the AH share premium factor, corresponding to HK$13.24 per share, a “buy” rating.
Risk warning. Downside risks in the global macroeconomic environment; risk of cost and exchange rate fluctuations; risk of fuel price fluctuations; risk of market competition.