Key points of investment
Zhenhua Heavy Industries: Global leader in HAE+offshore equipment, equity incentives show confidence in development 1) The company is a global leader in HAE+offshore equipment, with a 70% global market share for shore bridge cranes, ranking first in the world for 26 consecutive years.
2) Revenue CAGR = 7.6% and net profit CAGR = 0.2% for the past 5 years. The geometric ROE for the past 5 years was 3%. The company signed a new order of $5.6 billion in 2023, and the past 5 years order CAGR = 9.5%. Release an equity incentive plan to demonstrate confidence in development.
Port cranes: The company is a global leader, benefiting from renewal requirements, automation upgrades, category expansion, and post-market services 1) Large market space: the world reached 67.3 billion yuan in 2022, with a share of 20.5 billion yuan within China, accounting for about 31%. The global market is expected to reach 103.9 billion yuan by 2028, with CAGR = 7.7% in 2022 to 2028, benefiting from a steady increase in global container throughput. The future development trend of the industry will benefit from large-scale, automated and high-speed expansion, driving the continuous increase in demand for HAECO upgrades.
2) The competitive landscape is concentrated: Large port cranes - Zhenhua Heavy Industries is the world leader. Other industry participants are mainly large comprehensive construction machinery manufacturers, including: German Liebherr Group, Italy's Fantuzzi, Japan's Mitsui Manufacturing, Korea's Doosan Construction Machinery, Sweden's Kalmar, Sany International, etc. Small port cranes - There are many types of products, and industry companies are more diverse than large port machines. Sany International occupies a leading position in the container front crane and forklift market. Competitive landscape trends - The HAECO industry has a high threshold and a high concentration of downstream port customers. It is expected that the competitive pattern will continue to be concentrated in the future.
3) Zhenhua Heavy Industries: A global leader with a market share of 70%, benefiting from automation upgrades, category expansion, and post-market services. The company has had the highest market share in the world for 26 consecutive years, and has maintained a market share of over 70% since 2006. In 2011-2023, HAECO's new orders increased from US$2.46 billion to US$3.61 billion, with CAGR = 3.2%. The company occupies a leading position under the trend of large-scale expansion and automation. In the future, if it relies on Dagang Machinery's leading position and extends to multiple product categories and aftermarket services, space is expected to continue to open up.
Offshore equipment: Benefiting from oil prices and wind power demand, the company's order trend is upward 1) Market space: In 2022, the revenue of China's offshore equipment manufacturers reached 74 billion yuan, an increase of 19.7% over the previous year. Downstream demand is mainly driven by the boom in offshore oil and gas, offshore wind power, and offshore engineering construction. CNOOC market - Current oil prices have good economic returns and capital expenditure momentum. CNOOC's capital expenditure increased from 62.1 billion yuan in 2018 to 128 billion yuan in 2023, CAGR = 15.6%. Offshore wind power market - Benefit costs are falling, and the installed volume of large-scale fan drives continues to increase.
2) Competitive landscape: industry barriers are high and there are few competitors. However, the middle and high-end market is dominated by European, American, Japanese, and South Korean companies. Most domestic companies are mainly middle- and low-end, and are gradually entering the high-end sector. Domestic leaders in China Shipbuilding, CIMC Group, and Zhenhua Heavy Industries are leading the way and are looking forward to an accelerated breakthrough.
3) Zhenhua Heavy Industries: leading offshore equipment company, order CAGR = 21% in the past 6 years. The company has offshore EPCI general contracting capabilities, and has the ability to design and manufacture jack-up drilling platforms and offshore special ships and develop core components. Offshore equipment orders increased from US$580 million in 2018 to US$1.51 billion in 2023, and the 2018-2023 order amount CAGR = 21%.
Investment advice: The world's leading HAECO and offshore equipment leader, benefiting from an upward demand cycle, category expansion, and governance optimization, the company's net profit is expected to be 8/8.8/1.08 billion yuan in 2024-2026, up 54%/10%/22% year-on-year, corresponding to PE24/22/18 times, corresponding to PE24/22/18 times, corresponding to PB 1.18/1.12/1.06 times. First coverage, giving a “buy” rating.
Risk warning: risk of macro-environmental fluctuations, interest rate and exchange rate risk, supply chain security risk.