Key points of investment

The company issued a pre-performance increase announcement. Net profit to the mother is expected to increase by 94%-145% year-on-year in 2023. According to preliminary estimates, the company expects to achieve net profit attributable to parent company owners in 2023 of 65-82 million yuan. Compared with the same period last year (statutory disclosure data), it will increase by 32-49 million yuan, an increase of 95% to 146% year-on-year. Compared with the same period of the previous year (financial data after restatement), it will increase by 315.55 million yuan to 485.55 million yuan, an increase of 94% to 145% year over year; net profit attributable to owners of the parent company after deducting non-recurring profit and loss is expected to be achieved in 2023, an increase of 250.58% to 398.19% compared with the same period last year (financial data after restatement).

The main reasons for the increase in the company's performance are 1. The shipbuilding industry is recovering, the sales scale of diesel engine division subsidiaries expanded in 2023, orders increased dramatically, and the price of the main product, marine low-speed engines, also increased, and gross margin increased; 2. The increase in orders led to a sharp increase in advance payments, a decrease in financial expenses, and a sharp increase in foreign exchange earnings over the same period last year. The implementation of multiple benefits highlights the upward trend in the marine boom cycle. As a leader in marine power systems, the company is expected to significantly benefit from the growth of the industry.

The company is the only listed marine power platform under China Shipbuilding Group. It is the world's leading marine power system development and production company. The power business covers seven major power sectors and related auxiliary equipment. The products have high performance and high added value, strong market competitiveness, and broad application scenarios. The company is a leader in multiple segments, focusing on asset integration in the diesel engine business, further expanding its business scale and consolidating its leading position in the market.

Shipbuilding industry: Cyclical upward trend, profit improvement

Cycle position: rebound at the bottom, upward trend. Benefiting from the profits of container ship owners, the industry has seen a significant increase in new ship orders since 2021, and the cost of new ships has continued to rise. Currently, the industry continues to grow at a high rate with the addition of new tankers and replacement demand. The cycle has now rebounded at the bottom and is in a period of boom; future industry outlook: As the main ship type with the largest stock, the BDI index may increase or accelerate demand for new and replacement. Considering that the index is affected by many factors such as the global macroeconomy, and there is uncertainty about the rise in the index next year, we judge that the subsequent growth rate of new ship orders may slow down; however, due to supply contraction and difficulties in expanding production, tight supply and demand, or driving ship prices to continue to reach new highs, the cycle is expected to fluctuate upward over the long term.

Multiple factors drive industry demand: 1) the aging of ships is accelerating, and demand for renewal is urgent; 2) environmental protection and emission reduction accelerates ship renewal, and dual fuel is a development trend; 3) geopolitical conflicts lengthen routes, and fleet size is expected to expand; 4) shipowners' profits or strong capital expenditure requirements are expected to improve in future freight rates, and continue to recommend shipbuilders and upstream core equipment suppliers.

Profit forecasting and valuation

The company's net profit for 2023-2025 is expected to be 7.5, 11.9, and 2.42 billion, up 125%, 58%, and 104% year-on-year, and PE 49, 31, 15 times, maintaining the “increase” rating.

Risk warning: There are risks such as shipbuilding demand falling short of expectations and fluctuations in raw material prices.