Leading domestic power system, business performance has improved markedly. The company is a leading domestic ship power and transmission equipment enterprise. Its products are mainly used in the fields of national defense power equipment, ships and marine engineering. Benefiting from the upward shipping cycle in 23 years, the company's diesel engine orders increased, compounded by an increase in the price of low-speed marine engines. The company achieved net profit of 779 million yuan to mother, an increase of more than 100% over the previous year.

Benefiting from the upward shipbuilding cycle, demand for the company's marine diesel engines is strong, and contract debt continues to rise.

Since 21 years, benefiting from ship renewal and short-term geopolitics catalyzed by factors such as ship renewal and short-term geopolitics, the major shipping cycle has continued to rise. The power system is the core equipment for ship operation. It accounts for more than 30% of the total cost of all ship equipment and accounts for more than 20% of the overall cost. The rising shipbuilding boom is driving up demand for power systems. At the same time, as environmental protection policies in the shipping industry become stricter, the general trend is for dual-fuel ships to replace traditional fuel vessels, which is beneficial to the release of demand for dual-fuel engines. The company is the world's leading marine low-speed diesel engine, backed by China Shipbuilding Group, the world's largest shipbuilding group, and has a high degree of certainty in marine engine orders; in addition, the company has advanced dual-fuel engine technology, delivered several of the world's first dual-fuel low-speed diesel engines in 23 years, and the first domestic methanol dual-fuel low-speed engine produced by the company in May 24 successfully achieved dual-fuel mode supply and train operation. Company Guanwei expects that by the end of 24, China Shipbuilding Engine will be the first in China to have 6 methanol dual-fuel engines. Continuous delivery Competent methanol dual-fuel low-speed engine manufacturers further enhance the ability to take orders for dual-fuel engines. According to the 23 annual report, the domestic share of the company's low-speed marine diesel engines increased to 78%, and the international share to 39%. In '23, 560 new low-speed diesel engines were picked up for ships, +42.5% compared to the same period last year. In terms of contract liabilities, the company's contract debt climbed from 3.614 billion yuan to 14.668 billion yuan in 21-23, and further increased to 17.496 billion yuan at the end of the first quarter of '24. Sufficient orders in hand are expected to support the long-term growth of the company's revenue.

Engine prices have increased and raw material prices have remained low, so I am optimistic that the company's profits will increase. According to Clarkson, benefiting from the upward shipbuilding cycle, global new shipbuilding prices have continued to rise in recent years. As of 4M24, the global new shipbuilding price index reached 183.9, +9.9% year-on-year. The rise in shipbuilding prices is expected to drive up ship engine prices. According to the International Shipping Network, the price of dual-fuel engines is more than 20% higher than that of traditional diesel engines, and the increase in the penetration rate of dual-fuel engines is expected to drive a structural increase in the company's engine prices. Furthermore, the main raw material for diesel engines and other equipment is steel. According to iFind, the comprehensive steel price index has shown a significant downward trend since September '21. As the pressure on raw material costs slows down and the price of superimposed diesel engines rises, I am optimistic that the company's profitability will increase.

We expect the company's revenue for 24-26 to be $526.13/605.19/69.863 billion yuan, net profit to mother of 11.50/19.38/2,780 billion yuan, and corresponding PE of 38X/23X/16X. Benefiting from the continuous increase in the average price of engine products, the company's profitability is expected to continue to improve in the future. The company will be given 46 times PE in 24 years, corresponding to the target price of 24.16 yuan/share, maintaining the “increase” rating.

The risk of convertible debt-for-equity swaps, the risk of fluctuations in raw material prices, and the risk that the upward cycle in the shipping industry falls short of expectations.