Key points of investment

The company issued a pre-performance increase announcement. The 2024H1 net profit is expected to increase by 60%-80% year on year. According to preliminary estimates, net profit due to mother is expected to be 0.459-0.516 billion yuan in the first half year of 2024, an increase of 60% to 80% year-on-year compared with the same period of the previous year (statutory disclosure data), and a year-on-year increase of 60% to 80% compared with the same period last year (financial data after review); it is expected to achieve net profit without deduction of 0.383-0.437 billion yuan in 2024, compared with the previous year Compared to the same period (statutory disclosure data), the year-on-year increase was 180% to 220%, and the year-on-year increase compared to the same period last year (financial data after restatement) was 180% to 220% year-on-year.

The main reason for the increase in the company's performance is 1. The shipping industry is developing well. The sales scale of the diesel engine sector continued to expand in the first half of 2024, orders increased dramatically, and the order price and gross margin of the main product, marine low-speed engines, also increased, and sales volume of high-margin models increased year-on-year. 2. In the first half of 2024, the company's marine machinery sales scale expanded, and product orders with high gross margins increased, and profits increased year-on-year. 3. The company's non-recurring income for the current period was low, and net profit after deducting non-return to mother increased year-on-year.

The company is the only listed marine power platform under China Shipbuilding Group. It is the world's leading marine power system development and production company. The power business covers seven major power sectors and related auxiliary equipment. The products have high performance and high added value, strong market competitiveness, and broad application scenarios. The company is a leader in multiple segments, focusing on asset integration in the diesel engine business, further expanding its business scale and consolidating its leading position in the market.

Shipbuilding industry: rising boom, improving profits

Core drivers of the industry: (1) upward cyclical boom, rising demand for multiple ship types, improvement in shipyard profitability; 1) demand: volume -- China's 2023 completion/new/handheld orders increased 12%/56%/32% year on year respectively, with plenty of room for growth in many indicators; 2) demand: price -- Clarkson's new ship cost index reported 187 points as of June 2024, up 9.4% year on year. Since the beginning of 2021, the cumulative increase of 47%, is at a historical peak of 98%. Continued to reach new highs; 3) Downstream capacity -- capacity for tankers will still be scarce until 2025, and there is plenty of room for subsequent orders; 4) Supply: Shipyard traffic is nearly saturated, but the number and delivery volume of active shipyards have declined significantly, and supply and demand are tight or driving ship prices to continue to rise; trend judgment: the cycle is expected to fluctuate upward over a long period of time, and the high prosperity will continue. Leading companies and upstream core supporting companies in the entire industry chain have high performance elasticity.

Profit forecasting and valuation

The company's net profit for 2024-2026 is expected to be 1.29, 2.16, and 3.13 billion, up 66%, 67%, 45% year on year, and PE36, 21, 15 times. As a marine engine leader, the company will benefit significantly from the upward trend in the industry over the long term, continue to improve profits and deliver results, and be upgraded to a “buy” rating.

Risk warning: There are risks such as shipbuilding demand falling short of expectations and fluctuations in raw material prices.