Incident: After the market on April 25, the company released its 2024 quarterly report.
Performance exceeded expectations; 2024Q1 revenue increased 48% year on year, net profit to profit 2024Q1 achieved operating income of 2.807 billion yuan, an increase of 47.82% year on year; net profit to mother was 15.37 million yuan, after deducting net profit of not to mother of 25.23 million yuan, which turned loss into profit year on year, mainly contributing to a significant improvement in gross margin.
Profitability increased significantly; 2024Q1 gross margin increased 4.11 pct year over year, net margin increased 3.63 pct year over year Profitability: 2024Q1 sales gross margin was 9.15%, up 4.11 pct year on year, up 2.8 pct month on month; net sales margin was 0.88%, up 3.63 pct year on year, up 0.27 pct year on month. The significant increase in 2024Q1 profitability may be due to changes in product structure and an increase in the share of orders with higher gross margins.
Cost side: The cost rate during 2024Q1 was 7.61%, a year-on-year decrease of 0.66 pct. It mainly contributed to the decline in management cost rates and R&D cost rates, and the scale effect was reflected. Among them, sales, management, R&D, and financial expense ratios were approximately 0.94%, 4.79%, 4.88%, and -3.00%, respectively, with year-on-year changes of +0.55, -1.68, +1.68, and -1.21pct, respectively.
The only “A+H” platform under China Shipbuilding Group. One of the leading shipbuilding companies is a major shipbuilding enterprise under the China Shipbuilding Group and the country's core military manufacturing enterprise. It has advanced technology in the fields of liquid cargo ships, feeder container ships, special ships, etc., and the ship repair business contributed about 87% of revenue in 2023. Among them, container ships, bulk carriers and special ships (others) account for 31%, 7%, and 57% of the shipbuilding business respectively. In the future, the company is expected to benefit from rising industry sentiment and asset consolidation to open up the ceiling for development.
The company has two major shipyards, which are strong and booming. Huangpu Wenchong is an important multi-ship manufacturer of military ships, official ships, and branch container-like ships in China, and builds many series of military ships and official ships. Guangzhou Shipbuilding International is the largest and most modern comprehensive shipbuilding enterprise in South China, and is also the leading domestic military auxiliary ship production support base, and also has significant advantages in the field of special ships. The two major subsidiaries have sufficient production capacity, and the number of shipyards is among the highest among domestic shipyards, which fully guarantees the production and delivery of the company's orders; the two major subsidiaries are technologically advanced, and it is expected that in the future, they will receive excess orders as the industry develops, and the growth rate of the industry will exceed the growth rate of the industry.
Civilian ships: The cyclical boom is upward, demand for orders for multiple ship types is rising, and shipyard profitability is improving 1. On the demand side, 1) Volume: China's completed, new, and handheld orders in 2023 increased 12%, 56%, and 32%, respectively, 59%, 71%, and 60% during the peak period, and there is plenty of room for growth in many indicators; 2) Price: Clarkson's new ship cost index closed at 182 points as of March 2024, up 10% year on year. The cumulative increase of 43% since the beginning of 2021 is at the historical peak of 95%. Of General inflationary pressure pushes ship prices to continue to reach new highs;
2. Downstream capacity: There is still a shortage of capacity for tankers until 2025, and there is plenty of room to place orders for subsequent tankers and dry scatters;
3. Supply: Shipyard traffic is almost saturated, but the number of active shipyards and deliveries have declined significantly, and supply and demand are tight or driving ship prices to continue to rise; trend judgment: 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 for a long time, the high level of prosperity will continue, and the company's performance is flexible.
Warships: The “endogenous” construction equipment of the Chinese Blue Army has developed greatly, and the integration of “outreach” assets has opened up the development ceiling 1. Domestic demand: China's navy continues to transform from offshore defense to ocean protection, and building an advanced fleet is the basic guarantee for building a strong navy. As one of the most important manufacturing bases for military ships in China, the company is expected to continue to benefit from naval modernization;
2. Foreign trade: Naval ship export expectations are optimistic, optimistic about the long-term development space of military trade.
Profit forecasting and valuation
Net profit due to mother for 2024-2026 is expected to be $9.14, 15.61, and 2,251 million, up 1802%, 71%, 44% year-on-year, and CAGR = 57%. The corresponding PE is 39, 23, and 16 times, maintaining the “gain” rating.
Risk warning:
1) Shipbuilding demand falls short of expectations; 2) Raw material prices fluctuate.