Key points of investment:
China Shipbuilding: Global shipbuilding leader, benefiting from the upward shipping cycle. The company is a leading global shipbuilding enterprise with high-quality shipbuilding assets. The four major shipyards are all top domestic shipbuilding companies, each with strong advantages and strength, and the company's global market share is 10%. In 2021, ship orders began to recover. By 2023, the recovery had been close to three years. The company's revenue had increased dramatically, and the recovery in net profit had reached an inflection point. In 2023, the company achieved revenue of 74.8 billion yuan, +26% year-on-year, and realized net profit of 2,957 billion yuan, or +1615% year-on-year. As industry sentiment rises and shipping prices continue to rise, gross margin reached 10.57% in 2023, +2.97pct. Due to the long shipbuilding cycle, profit release lags behind order recovery, and gross margin is expected to rise further in the future.
The rigidity of global shipbuilding production capacity, continuous upward interpretation of the cycle
The shipping industry received 107 million DWT of new orders in 2023, +29.73% year-on-year. Compared to the peak of the previous cycle in 2006-2008, the number of new orders received worldwide was 211 million, 263 million, and 182 million DWT, respectively, with an average of 219 million new DWT each year. There is still plenty of room for ship renewal demand. The number of active shipyards in the current cycle declined, and capacity expansion was limited. In 2023, the number of active shipyards worldwide was only 300+, a decrease of 500 compared to the peak. The recovery in the market combined with the rigidity of production capacity has caused the price of new ships to continue to rise. In early May 2024, the new ship price index climbed to 186.10, up 9.4% year on year, making it the highest ship price index since December 2008.
The recombination of the two ships enhances global competitiveness, and the order structure continues to be optimized and the restructuring of the two ships is imminent. It is expected that joint efforts will be formed to further enhance international competitiveness. The restructuring of the two ships adopted a parallel strategy of restructuring at the group level and restructuring at the listed company level. The restructuring at the group level has basically been completed, and the restructuring at the listed company level is expected to inject high-quality shipyard assets into the company. The company's order structure was optimized, upgraded to high-end ships, and transformed into green ships. Among the new orders received by China Shipbuilding Co., Ltd. in the first three quarters of 2023, mid-range and high-end ships accounted for nearly 80%, and green ships accounted for nearly 50%. Looking at the order structure, tankers account for about 20%, bulk carriers, PCTC, and liquefied gas carriers each account for about 15%, and container ships account for about 20% (in terms of number of vessels).
Profit forecasting and investment advice
We expect the company's 2024-2026 revenue CAGR to be 12.5%, net profit CAGR to mother of 45%, and EPS of 1.22 yuan, 1.90 yuan, and 2.58 yuan respectively. Using the comparable company valuation method, the average PE multiples for comparable companies in 2024-2026 were 40, 25, and 15 times. We believe that the ship cycle continues to prosper, and the company is profoundly benefiting as a leading global shipbuilder. Net profit for the next three years will be 5.5, 8.5, and 11.5 billion dollars, respectively, corresponding to 30, 20, and 14 times PE, which is the first time that coverage is given a “buy” rating.
Risk warning
New orders are lower than expected; risk of fluctuations in raw material prices; risk of exchange rate fluctuations.