2023&1Q24 results are in line with our expectations
The company achieved revenue of 74.839 billion yuan in 2023, +25.81% year-on-year; net profit to mother of 2,957 billion yuan, compared with 172 million yuan in 2022; net profit without return to mother - 291 million yuan, a significant year-on-year reduction in losses.
4Q23 achieved revenue of 25.185 billion yuan in a single quarter, +20.30% year over year; net profit to mother of 396 million yuan, a significant year-on-year reduction of losses; net profit after deducting non-return to mother of 137 million yuan, which was corrected for the first time since 2019.
The results are at the center of the forecast and are in line with our expectations.
The company achieved revenue of 15.270 billion yuan in 1Q24, +68.84% year over year; net profit to mother of 401 million yuan, +821.12% year over year; net profit after deduction of 338 million yuan, which is basically in line with our expectations.
Development trends
The target at the beginning of the year was exceeded, and the contribution of the disposal offshore platform was inadequate. According to the company's annual report, in 2023, the company completed the delivery of 81 civilian ships/7,534,900 dwt. The tonnage completed 122.80% of the annual plan, an increase of 7.55% over the previous year. In 2023, the company's subsidiary Waigaoqiao Shipbuilding recovered the final payment of the contract for 4 offshore platforms and confirmed revenue of 5.927 billion yuan and confirmed gross profit of 2,659 billion yuan. Looking at various shipbuilding platforms, the net profit of Jiangnan Shipbuilding/Waigaoqiao Shipbuilding/CSSC Chengxi/Guangzhou Shipbuilding International/Huangpu Wenchong returned to mother in 2023 was -14% /regularized/ +47%/-95%/+11%, respectively. Among them, the increase in Waigaoqiao's profit was mostly due to disposal of the Shandong Offshore Platform's profit plus the impairment preparation for large shipbuilding contracts calculated in '22, while the decline in profits of Guangzhou Shipbuilding International was mostly due to confirmed plot collection and storage compensation revenue in '22.
Gross margin fluctuated in 1Q24, and the cost ratio improved significantly during the period. The company's 1Q24 gross profit margin was 7.22%, -2.2ppt year over year, and -2.4ppt month-on-month. However, we believe that with the completion and delivery of a large number of high-priced ships in the early stages this year, profitability is expected to pick up in the future. 1Q24's sales period expense ratio was 5.12%, -3.9ppt year on year. The company's net profit margin of 1Q24 was 2.63%, +2.1ppt year over year.
Cash flow surged in '23, supporting the certainty of subsequent profits. The company's cash flow from operating activities in '23 was 18.213 billion yuan, a record high. Currently, there is a time lag between the “five-step method” and the “completion percentage method” for revenue recognition. We believe that the large cash flow from operating activities in '23 is expected to support a high increase in subsequent revenue and profit confirmation, and the profit inflection point signal is clear.
The shipbuilding boom has continued for 24 years, and I am optimistic that the company will continue to benefit the industry beta. In terms of volume, the trend of completed deliveries is improving. According to the Shipbuilding Association, the cumulative domestic DWT of completed/orders/handheld orders in January-January was +95.4%/+64.4%/+31.3%, respectively. In terms of price, new ship prices continued to rise. According to Clarkson, the global new ship price index for March reached 183.2, +10.7% year over year, and +1.0% month on month. According to the annual report, the company's operating target for 24 years is to complete revenue of 72.2 billion yuan, and the completion plan is to complete 82 ships/6.7384 million dwt for civil shipbuilding. However, we believe that the company is currently continuing to promote quality, efficiency, and delivery, and is expected to exceed this target.
Profit forecasting and valuation
Considering the good delivery trend, but gross margin may increase or take time, we lowered our 2024 net profit by 10.3% to 5.509 billion yuan, keeping the profit forecast for 2025 unchanged. The current stock price corresponds to the 2024/2025 price-earnings ratio of 30.4 times/18.5 times. Maintaining an outperforming industry rating, considering the upward trend in the industry's valuation center, maintaining a target price of 42.00 yuan, corresponding to 34.1 times the 2024 price-earnings ratio and 20.8 times the 2025 price-earnings ratio, with 12.2% upside compared to the current stock price.
risks
Decline in shipping sentiment; fluctuating raw material prices; depreciation of the US dollar exchange rate; risk of trade friction; risk of restructuring failure.