Key points of investment
1. One-sentence logic
China Shipbuilding: Leading shipbuilding company, benefiting from rising industry sentiment and continuous improvement in company profits.
Core drivers: 1. Industry sentiment is rising, leading companies are taking the lead in receiving high-quality orders; 2. Supply is tight, and higher shipping prices promote profit improvement; 3. Optimistic about the long-term value of military central enterprises; asset integration and state-owned enterprise reform are worth looking forward to.
II. Logic that exceeds expectations
1. Market expectations: Ship prices are already at a historical peak of 96%, and subsequent growth is difficult, and there is insufficient momentum for container ships to place subsequent orders; competition in the shipbuilding market has intensified due to increased demand, and the company's ability to take subsequent orders is at risk.
2. We predict that shipyard traffic is almost saturated, but the number of active shipyards and current deliveries have declined significantly compared to historical highs. Supply and demand are tight or driving ship prices to continue to rise. The long-term cycle is expected to fluctuate upward. Tankers and dry bulk carriers are relaying orders, and industry prosperity continues; orders for new ships are developing in the direction of large-scale, high-end, and dual-fuel, and industry concentration continues to increase. The “Matthew effect” is obvious, and the performance of leading companies is highly elastic.
III. Inspection and Catalysis
1. Inspection indicators: new order volume, shipbuilding completion volume, handheld order volume, new ship cost, new ship price index, shipping index, production capacity utilization inspection index.
2. Possible catalysts: the number of new orders in the shipping industry continues to grow; single ship prices rise; oil and dry bulk shipping price indices rise; the company signs new high-value-added ships; group asset integration and state-owned enterprise reform accelerate.
IV. Research value
1. Unique understanding: The market believes that ship prices are currently in a high position, and there is insufficient momentum for subsequent increases.
We believe that there is still a lot of room for real ship prices to rise, and peak ship prices in this cycle are expected to exceed the peak of the previous round.
Judgment basis: As of April 2024, the Clarkson New Ship Cost Index closed at 183.6 points, a year-on-year increase of 10%, and is in the 96% position of the historical peak; the box/tanker/dry-dispersion ship cost index increased 10.65%/8.07%/5.02% year over year, respectively, in the 88%/85%/71% level of the historical peak, and ship prices have increased significantly; however, considering the apparent factors of “the more built the ship is bigger”, the increase in labor costs and inflation, etc. There was a big increase space.
2. A different understanding from before: (1) In the past, it was thought that future shipowners were not willing to place orders, and the growth rate of new orders was less than expected. We believe that subsequent oil tankers and dry bulk carriers are still willing to place orders.
Judgment basis: According to Clarkson's forecast data, the 2024/2025 capacity gap for container ships is expected to be -3%/-4.2%, respectively. Future capacity exceeds demand, and container ships are less likely to continue to place large orders in the later stages; the difference in crude oil capacity supply and demand is expected to be 3.5%/2.7%, and refined oil products are expected to be 4.5%/-1.3%, respectively; future tankers are still likely to place large orders; there is no obvious significant increase in demand, but there is no obvious significant increase in demand, but many factors such as reduced canal traffic capacity and geopolitical conflicts help the market. Ships Driven by cycles and environmental protection, the later stages of the international dry bulk shipping market are worth looking forward to.
(2) Previously, it was believed that the profitability of shipyards affiliated with China Shipbuilding was limited. We believe that major shipyards under China Shipbuilding already have strong profitability, and future performance is expected to continue to improve.
Judgment basis: The company's 2023 annual report shows that the subsidiary Jiangnan Shipbuilding achieved operating income of 29.4 billion yuan, an increase of 11% over the previous year, and realized net profit of 506 million yuan; Waigaoqiao achieved operating income of 208 billion yuan, an increase of 118% over the same period in 2022; the company's 2024 quarterly report showed that it achieved net profit of 401 million yuan, an increase of 821% over the previous quarter. The main reason was an increase in operating profit due to increased operating income; Passed Various methods such as strengthening lean management and strengthening cost control have reduced costs and increased efficiency, and enterprise efficiency has improved markedly.
5. Profit prediction and valuation
The company's net profit for 2024-2026 is expected to be 54.4, 89.8, and 11.44 billion, up 84%, 65%, 27% year-on-year, and PE31, 19, 15 times, maintaining the “buy” rating.
6. Risk Reminder
Risks such as shipbuilding demand falling short of expectations and fluctuations in raw material prices.