Key points of investment:

CIMC Group: Global container leader, multi-business collaborative development of the company's diverse business, maintains a leading position in the global industry in the container business, with a global market share of about 45%. The company has also developed strong competitiveness in road transport vehicles, energy/chemical/liquid food equipment, and marine engineering businesses around the world. The company's performance declined in 2023, mainly due to a correction in the container market, and the new container market experienced a cyclical slump. In 2023, the company achieved operating income of 127.8 billion yuan, -9.70%; the company achieved net profit to mother of 0.421 billion yuan, -86.91% year over year; realized gross margin/net margin of 13.77%/1.46% of sales, respectively, -1.51 pct/-1.79 pct year on year.

Container industry: The market bottomed out and the company's performance is expected to rebound. At a macro level, container demand is closely related to the global trade and inventory cycle. According to WT's forecast, the growth rate of commodity trade will be under pressure in 2023, and the growth rate is expected to reach 3.3% in '24. Looking at it, overbought inventory is overbought after 21 years, and container sales are expected to reach a record low in 23, which is expected to return to the normal level of the industry in 24 years. This year was affected by factors such as the situation in the Red Sea, new capacity distribution, and a small peak in shipments before the Spring Festival. As a result, container turnover slowed down, shipping companies and other mainstream customers were more willing to buy boxes, and market demand picked up. From the company's perspective, the company's standard dry cargo container sales volume in 2024Q1 was about 0.4944 millionteU, +499% year-on-year. Orders in the third quarter were saturated, and orders for the fourth quarter began.

Offshore industry: Production platform orders continue, drilling platform leasing is hot, international oil prices have stabilized at around $80 per barrel, and are expected to remain stable in 2024. Various agencies are optimistic about future oil and gas investments. Against this backdrop, the offshore industry remains popular. Orders for all types of offshore equipment have picked up to varying degrees in '23, and orders for floating production equipment are close to their historical peak. Offshore drilling platforms operate at a high level of utilization, rents are rising steadily, and market demand remains active. In 2023, the company's offshore engineering business revenue was 10.452 billion yuan, up 81.12% year on year; net loss was 0.031 billion yuan, a year-on-year decrease of 0.303 billion yuan. Demand for downstream equipment leasing is very active, with rental revenue +80% year-on-year. The company is expected to obtain high-value leases for its three semi-submersible drilling platforms in the future, bringing benefits to the company.

Profit forecasting and investment advice

We expect the company's 2023-2026 revenue CAGR to be 10%, net profit CAGR to mother of 130%, and EPS of 0.55 yuan, 0.79 yuan, and 0.95 yuan respectively. Using the comparable company valuation method, the average PE of comparable companies after adjustment in 2024-2026 is 14, 11, and 9 times, respectively. CIMC's net profit for 2024-2026 is estimated to be 2.97, 4.275, and 5.102 billion yuan, corresponding to PE 15, 11, and 9. Considering the rising boom in the container and offshore industry and the company's leading position in the global market, we believe that the company still has a value-value ratio and is covered with a “buy” rating for the first time.

Risk warning

Risk of economic cycle fluctuation, financial market fluctuation and exchange rate risk, raw material price fluctuation risk