Introduction to this report:

Q1: Steady growth in performance and further improvement in profitability. An undervalued and high-dividend benchmark state-owned enterprise, the shipbuilding business is growing at an accelerated pace, and the value is expected to be re-valued.

Key points of investment:

Maintain an increase in holdings. [Qa1ry Camp] collected 23.74 billion yuan/ -23.4%, and net profit of 266 million yuan/ +5.09%, after deducting not 231 million yuan/ +4.85% was in line with expectations. Maintain the 2024-26 EPS forecast of 0.83/0.93/1 yuan, a growth rate of 6/11/ 8%, maintain the target price of 10.89 yuan, and maintain the increase.

Profitability increased, and operating cash outflow increased year-on-year. 1) We judge that the decline in Q1 revenue was mainly due to factors such as domestic trade demand; 2) Q1 gross profit margin of 6.1% /+1.5pct. We expect net profit margin 2.83% /+0.77pct due to business structure optimization; net profit margin 2.83% /+0.77pct; 3) period expense ratio 2.9% /+0.6pct, sales/management/R&D/finance 1.5/0.89/0.49/ 0.02%, respectively, +0.39/+0.12/-0.11pct, respectively; 4) Net operating cash flow 2.32 billion yuan (same period last year - 1.03 billion yuan). We expect an increase due to bulk inventory preparation.

Shipbuilding has received another important order, and the sharp rise in volume and price has laid a solid foundation. 1) On April 23, the shipping company and Hong Kong shipowner Huaguang Shipping signed a strategic cooperation agreement. The two sides also signed two new Crown 63 PLUS shipbuilding contracts (4 ships were previously delivered), and will cooperate in upgrading ships and strive to reach the EEDI4 stage; 2) Currently, the company is ordering 66 ships, which are scheduled to reach the end of 2026. We expect 24-26 ships to be delivered in 2024 (19 in 2023). We are optimistic that profit margins and profit contributions will continue to increase.

The benchmark for undervalued and high-dividend central enterprises, the development of the double chain is steady and far-reaching. 1) The company continues to optimize its business structure, and dual chain development helps strengthen operational resilience and improve profitability; 2) As a central enterprise China Machinery Group holding company, the majority shareholders/brother units have strong resource endowments, and incentives for key employees are in place, laying a solid foundation for overseas trips and business collaboration; 3) Proposed dividends of 431 million yuan and a dividend rate of 41.9% in 2023. Currently, only 10.4 times PE is still underestimated.

Risk warning: commodity price fluctuations, economic fluctuations, shocks from other competitors, etc.