Key points of investment

The core shipbuilding enterprise under the China Shipbuilding Group, benefiting from the rising ship boom. The tanker dry bulk carrier order relay company is a leading shipbuilding enterprise under the China Shipbuilding Group and is one of the core listed companies for military and civilian vessels in China. The company owns internationally renowned modern shipbuilding companies such as Dalian Heavy Industries, Wuship Heavy Industries, and Beihai Shipbuilding.

The company's core highlights: 1) The ship boom is on the rise, and orders for tankers and dry bulk carriers are expected to be relayed; production capacity is tight, shipping prices are rising, and the industry is expected to achieve a sharp rise in volume and price; 2) As a global core shipyard, the company's superior ships are expected to benefit preferentially from subsequent tanker and dry bulk carrier order relay; 3) Long-term value revaluation of military central enterprises, asset integration and state-owned enterprise reform are worth looking forward to.

The shipbuilding industry's ship exchange cycle, environmental protection policies, and tight production capacity have all contributed to an upward cyclical boom in the industry cycle, an increase in demand for orders for multiple ship types, and an improvement in shipyard profitability. 1) Demand: ① Amount:

From January to May 2024, Clarkson's new orders remained flat year over year, and the number of new orders received remained high. Among them, new orders received by box ships decreased by 53% year on year; new orders for tankers (10k+DWT, DWT) increased 47% year on year; new orders for bulk carriers decreased by 32% year on year; new orders for LNG carriers increased 122% year over year, a significant increase; new orders for other ship types fell 4% year on year; ② Price: As of 2024-7-14, the Clarkson New Ship Cost Index closed at 187.77 points, up 8.93% year on year, and is at the historical peak of 98%. Tight shipping capacity and inflationary pressure are driving ship prices to continue to rise; 2) downstream capacity: capacity for tankers will still be scarce until 2025, and subsequent tankers and dry scatters are likely to place orders; 3) Supply: Shipyard shipments are almost 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. Due to shrinking supply and difficulties in expanding production, combined with ship exchange cycles and environmental protection policies, tight supply and demand are expected to drive ship prices to continue to reach new highs, and the ship cycle is expected to fluctuate upward.

The holding subsidiaries Dalian Heavy Industries, Wushuian Heavy Industries, and Beihai Shipbuilding are core shipbuilding companies, with plenty of orders on hand 1) Dalian Heavy Industries: The main base for shipbuilding and maintenance support in China. The Liaoning and Shandong ships are all built here. Civilian ships are strong, mainly engaged in 0.3 million-ton super-large tankers, 10,000 tank-class container ships, large LNG carriers, oversized bulk carriers, etc.; the most advantageous 0.3 million-ton oversized tanker volume accounts for 15% of the world's operating VLCC fleet; 2) Wusun Heavy Industries: It is an important military production base in China, mainly engaged in business ships, research vessels, engineering ships, petrochemical ships, regional container ships, cruise ships, special auxiliary ships, etc.; 3) Beihai Shipbuilding: It is an important civil ship and offshore engineering equipment construction base in China Super tankers, large bulk carriers Cargo ships, oversized ore carriers, super FPSO, etc. In 2023, Dalian Heavy Industries' main business revenue was about 20.9 billion yuan, and Beihai Shipbuilding's revenue was about 6.4 billion yuan. According to Clarkson data, as of 2024-7-14, the above subsidiaries held orders of about 15.87, 0.52, and 13.72 millionDWT, respectively.

Profit forecasting and valuation

Net profit due to mother is expected to be around 1.7, 3.2, 5.2 billion yuan in 2024-2026, up 88% and 61% year-on-year in 2025-2026; corresponding to PE 71, 38, 24X, PB 1.4, 1.4, and 1.3X. Give it a “buy” rating.

Risk warning: risk of shipbuilding demand falling short of expectations, risk of fluctuations in raw material prices.