Incident: The company announced a pre-increase in performance. It is expected to achieve net profit of 65-82 million yuan in 2023, an increase of 95.38%-146.48% over the previous year.

The basic orientation is good, and the company's performance has grown beyond expectations

The company expects to achieve net profit of 65-82 million yuan in 2023, an increase of 95.38%-146.48% over the previous year; net profit after deducting non-return to mother is 38-550 million yuan, an increase of 250.58%-398.19% over the previous year.

Among them, Q4's net profit for the single quarter is expected to be 238-308 million yuan, up 431%-588% year on year, and 90.4%-146.4% month on month. The company has fully benefited from the upward cycle in the shipping industry, and the order scale and product prices have continued to grow. At the same time, the company's financial expenses declined during the year, and exchange earnings increased sharply year over year, and profits increased. The company's profit level is expected to increase further in 2024 as more high-value orders are delivered.

Leading marine power equipment, outstanding competitive advantage

As the core force of marine power system research and production in China, the company undertakes tasks such as scientific research, design, production, testing and support of ship power systems; through years of technology accumulation and independent innovation, the company has basically achieved autonomy and control of core power equipment, established a top domestic power equipment development and production system, and is in a leading position in domestic marine power system R&D and design, integrated manufacturing, equipment support and support services. Production capacity determines height, and scale determines share. Relying on a complete industrial chain and multiple advantages such as supply chain, brand and scale, and technology, the company is expected to seize more share in the current competitive pattern where the industry tends to be concentrated.

New ships maintain double increases in volume and price, and marine engines benefit deeply

Currently, the global shipbuilding industry is still booming. In terms of orders, in 2023, China's new shipbuilding completion volume (cumulative) was 42.23 million DWT (load tonnes), up 11.8% year on year; new orders received (cumulative) 71.2 million DWT, up 56.4% year on year; hand order volume was 139 million DWT, up 32% year on year. In terms of price, the overall price of new shipbuilding has maintained an upward trend. In early January 2024, the Clarkson New Shipbuilding Price Index climbed to 180.36, up 10.8% year on year, making it the highest ship price index since December 2008. We believe the industry will maintain a steady upward trend in the future. On the demand side, the aging of ships and the mandatory renewal of new energy regulations drive shipowners to continue to place orders; on the supply side, the number of active shipyards in the world is still in a downward channel, and the supply relationship between supply and demand is difficult to change in the short term, and ship prices are expected to maintain an upward trend. Marine engines account for about 20% of the total ship value. Future orders are expected to maintain a consistent increase in volume and price along with ship prices, and the company is expected to benefit deeply.

Strengthen independent research and development, and profitability is expected to further improve

Currently, marine power technology is mainly in the hands of developed countries, including companies such as MAN, WinGD, and J-Eng. Companies need to pay patent fees according to horsepower to corresponding companies to obtain authorization. The company targets market demand, increases research and development efforts, and continues to make breakthroughs in technological innovation. During the year, the company completed the development of new products such as the low-speed dual-fuel engine iGPR, and completed the manufacture of the world's first fuel-produced iCmDWingD5x72DF-2.1 fuel engine. The company seizes the opportunity of clean energy replacement, accelerates the development of new fuel engines such as ammonia fuel and hydrogen fuel, and continues to upgrade products. In the future, the company's own products are expected to gradually open up market space, and gross margin is expected to increase further.

Profit forecast: The global shipbuilding industry is in a large-scale upward cycle, while the shipbuilding market is further concentrated in China. As the only marine power listing platform under the China Shipbuilding Group, the company is expected to fully benefit and open up room for long-term development. As high-value orders continue to be delivered, the company's profits will further increase. We forecast the company's 2023-2025 revenue of 469.74/549.21/60.098 billion yuan, net profit to mother of 7.4/12.71/2.096 billion yuan, corresponding PE of 55.79/32.47/19.7X, giving it a “recommended” rating.

Risk warning: macroeconomic fluctuation risk, raw material price fluctuation risk, exchange rate fluctuation risk