China Ships: Shipbuilding leaders benefit from the large ship cycle, and the flexible release of performance can be expected. Chinese ships can be expected to be the leading domestic military and civilian ship assembly leader. The main business covers military and civilian shipbuilding business, marine engineering and mechanical and electrical equipment. It is affiliated with Jiangnan Shipyard, Shanghai Waigaoqiao Shipyard, CSIC Chengxi Shipyard, and Guangzhou Shipbuilding International's four major shipyards. Jiangnan Shipyard has a long history. It independently developed and carried out the first batch of 175,000 cubic meter MARK III thin-film LNG carriers in China; Waigaoqiao Shipyard delivered China's first domestic large-scale cruise ship “Aida Mordu” in 2023; Guangzhou Shipyard is a global leader in passenger and semi-submersible ships, as well as MR, LR, and PCTC ships. According to the International Shipping Network, according to the International Shipping Network, Clarkson statistics that in 2023, the four major shipyards undertook a total of 4.82 million new ship orders, accounting for 11.2% of the world, and the total number of hand-held ship orders totaling 10.13 million revised total tons, accounting for 8.3% of the world. Full orders support future performance, and the company is expected to usher in a profit inflection point in 2024, and profit flexibility can be expected to be released.

On the supply side, “green power” accelerates the replacement of ships on the supply side. From the supply side, the shipbuilding industry has gone through many years of supply clean-up after the 2008 financial crisis. Global shipyards have been reduced by more than half since the 2009 peak, and shipbuilding production capacity has been concentrated in China, South Korea, and Japan. Among them, China's shipbuilding industry is showing a marked trend of transformation from a “big country” to a “powerful country”, boosting LNG ships and green ships. On the demand side, ships newly built since the 2000s will accelerate into the aging phase starting in the 2020s. Among them, the aging of oil tankers is particularly severe; compounded by the global shipping industry's 2050 net zero emission target set by the IMO, the large-scale cycle of current ships is mainly driven by the Jugra cycle accelerated by “green power.”

The volume and price of the seller's market are rising rapidly and the cost of steel is low. The profit of shipping companies is expected to accelerate upward, and shipbuilding demand is strong. Under the seller's market, orders for new ships are concentrated, and shipping companies are full of orders and enjoy “capacity dividends”; on the price side, the global new shipbuilding price index continues to be high, and shipping companies have high bargaining power, and enjoy the price dividend of “delta supply

Investment advice:

We expect the company to achieve revenue of 708/808/90.3 billion yuan in 2023-2025, an increase of 18.9%/14.2%/11.7% year-on-year; in 2023-2025, net profit to mother of 29.5/55.5/9.29 billion yuan, respectively, an increase of 1618%/88.0%/67.3% year-on-year.

We selected major shipbuilding companies China Shipbuilding Corporation, China Heavy Industries, and China Dynamics, the leader in upstream power systems, as comparable companies. The corresponding average PE for 2024-2025 was 29.91/18.03; considering that Chinese ships are leading domestic military and civilian ship assemblies, and the proportion of civilian ships is high. Under the current shipbuilding cycle, the company was given a 34xPE valuation in 2024, corresponding to a 6-month target price of 42.21 yuan. The first coverage gave it a “buy-A” rating.

Risk warning: Macroeconomic risks falling short of expectations, raw material prices and exchange rate fluctuations, environmental protection policies falling short of expectations, risk of distorted reference data.