On July 9, the company released its 24th mid-year performance forecast. 1H24 expects to achieve net profit of 0.459-0.516 billion yuan, an increase of 0.172-0.23 billion yuan over the same period of the previous year, an increase of 60%-80%; it is expected to achieve net profit without deduction of 0.383-0.437 billion yuan, an increase of 0.246-0.301 billion yuan over the same period of the previous year, an increase of 180%-220% year-on-year, and a high increase in performance.

The product structure was optimized, and the company's 1H24 profit increased. According to the company announcement, 1H24 is expected to achieve net profit of 0.459-0.516 billion yuan, a year-on-year increase of 60%-80%, and high performance, mainly due to 1) the shipbuilding industry is developing well, the sales scale of the diesel engine sector has increased dramatically, and the order price and gross margin of the main product marine low-speed engines have increased year-on-year; 2) The company's marine machinery sales scale expanded in the first half of the year, and product orders with high gross margin increased year-on-year.

Backed by the upgrading of China Shipbuilding Group+ dual-fuel technology, I am optimistic that the company's ability to take orders will improve. The company is the world's leading marine low-speed diesel engine. It is backed by China Shipbuilding Group, the world's largest shipbuilding group, and has a high degree of certainty in ship engine orders. In addition, the company is leading in dual-fuel engine technology, delivering many of the world's first dual-fuel low-speed diesel engines in 23 years. The first domestic methanol dual-fuel low-speed engine produced by the company successfully achieved dual-fuel mode supply and train operation. In the future, it is expected to become the earliest methanol dual-fuel low-speed engine manufacturer with continuous delivery capacity in China, further enhancing 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%.

560 new low-speed diesel engines were picked up in '23, +42.5% compared to the same period last year.

Engine prices have increased and steel prices have remained low, and I am optimistic that the company's profitability will continue to increase. According to Clarkson, benefiting from the upward shipbuilding cycle, global new shipbuilding prices have continued to rise in recent years. As of 6M24, the global new shipbuilding price index reached 187.2, +9.55% year over 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 continue to increase.

We expect the company's revenue for 2024-2026 to be 52.64/61.095/70.993 billion yuan, net profit to mother of 1.15/1.938/2.977 billion yuan, corresponding PE of 40/24/16X, maintaining the “gain” rating.

Raw material price fluctuations, RMB exchange rate fluctuations, growth of new orders falling short of expectations, and lower implementation of carbon emission reduction policies than expected risks