The upward trend in the shipping industry boom cycle is clear. Renewal+environmental protection drives the recovery of the main ship types after 2020, and replacement demand is gradually showing. Delivery value CAGR is expected to reach 10% or more in the next 10 years. Combined with environmental protection policy demand for new energy ship types, oil tankers and bulk carriers are expected to continue to expand after the structural boom cycle of container ships and gas carriers. As of April '24, there were 48 orders for VLCC ships and 211 orders for MR vessels, all higher than the full year of 2023. Although supply contraction is driving up concentration, and it is difficult to expand production capacity in the short term, the strong performance on the price side is expected to continue against the backdrop of strong production capacity constraints and an upward boom, and there is still room for ship prices to rise. For example, the price of newly signed VLCC has risen to about 130 million US dollars, and the price of new ships continues to rise.
The global competitiveness of China's shipbuilding industry is improving, and the profit center of the current cycle is expected to surpass history. With a clear upward trend in the global shipbuilding industry beginning in '21, rising ship prices contributed to revenue growth, etc., the revenue growth of the shipping sector accelerated in 2023 and 24Q1; benefiting from large-scale effects combined with cost control, etc., non-net profit improved significantly. On the supply side, there is a clear trend of global orders being concentrated in leading shipyards. As of May 2024, CR5 orders in hand were 53% and CR10 was 69%. China's share of handheld orders continued to rise. As of May 2024, it continued to rank first in the world, while China's shipbuilding deliveries accounted for about 55%. Costs in the shipbuilding industry and revenue recognition time are misaligned, and there is still room for ship prices to continue to rise in the context of strong production capacity constraints. At the same time, due to factors such as industrial policy+shipping trade development+cost advantage, China's share in the field of high-value-added ship models has increased, and the share of new-fuel ships in global fleet models is expected to surpass the high point of the previous cycle.
China Shipbuilding resonates upward with the big cycle, and clearly has a leading position. China Ships' net profit from non-return to mother turned a loss into a profit in Q1 of '24. The 2023 Annual Report and 2024 Quarterly Report show that an inflection point in profit has occurred. In the future, as orders enter the centralized delivery period, profitability is expected to improve quarterly. As a leading global shipbuilding company, the company is focusing on the market in 2023. In the context of rising ship prices, the company received a significant increase in various business orders. The company received 128 civil ship orders throughout the year, delivered 81 civilian ships, completed 122.8% of the annual tonnage plan, and undertook 299 ship repairs. Currently, the delivery schedule for the company is holding orders and new orders until 2028. In recent years, driven by environmental policy and energy restructuring, the global ship structure is clearly trending towards larger, high-end, and dual-fuel ships. With its R&D advantages, talent advantages, and product structure advantages, Chinese ships have a strong competitive advantage in high-end ship models, and there is plenty of room for improvement on the profit side. As the shipbuilding group's core military and civilian product listing platform, the company is expected to benefit from asset integration in the later stages.
Maintain a “buy” rating. We expect the company to achieve net profit of 5.71 billion yuan and 9.49 billion yuan respectively in 2024-2025, corresponding to PE of 30 and 18 times, respectively. It maintains a “buy” rating and continues to make key recommendations.
Risk warning
1. Price flexibility for new orders falls short of expectations;
2. Commodity price reductions fall short of expectations;