Core views:

Incident: On July 25, according to the website of the National Development and Reform Commission, the Development and Reform Commission and two other departments issued a notice on “Certain Measures to Strengthen Support for Large-scale Equipment Renewal and Consumer Goods Trade-In”, proposing to arrange special funds for large-scale equipment renewal with ultra-long-term special treasury bonds to increase support for equipment renewal. Among them, it supports the scrapping and renewal of old operating vessels. Accelerate the scrapping and renewal of old ships with high energy consumption and high emissions, and promote the development of new energy and clean energy ships. We support the scrapping and renewal of old inland waterway passenger ships of 10 years or more, cargo ships of 15 years or more, coastal passenger ships of 15 years or more, and cargo ships of 20 years or more. Those that are upgraded to fuel-powered ships or new energy clean energy ships on a scrapping basis are subsidized at 1,500-3200 yuan/gross ton according to different ship types; new energy clean energy ships are subsidized at 1000-2200 yuan/gross ton according to different ship types; those that only scrap old operating ships early are subsidized at an average rate of 1,000 yuan/gross ton.

Comment: Special treasury bond funds support the replacement of old ships, and the revitalization of inland and coastal vessels is being accelerated. According to the Ministry of Transport's “2023 Transportation Industry Development Statistics Bulletin”, the country had 0.1183 million water transport vessels at the end of the year, with a net load of 0.301 billion tons. According to the 23 annual report, the company adheres to the direction of high-end, intelligent, and greening, and continues to make efforts in emerging industries such as green ship equipment. For inland watercraft and coastal vessels, the company's products include medium speed motors for civilian ships, integrated electric propulsion systems, etc. Ships sailing offshore, in line with the requirements of national environmental regulations, judging that power updates for old ships are expected to be on the agenda, and they are optimistic about new ship markets such as direct river and sea vessels and offshore sailing ships. This subsidy policy is expected to stimulate the replacement of old inland and coastal vessels and demand for new energy. The company is expected to take the lead in benefiting from its leading position in power systems and drive the expansion of the penetration rate of green engines.

Profit forecast and investment advice: The company's EPS for 24-26 is expected to be 0.54/0.77/1.17 yuan/share, respectively. Considering the company's leading position in ship power, we maintain the firm's judgment of a reasonable value of 24.41 yuan/share unchanged, corresponding to 45 times the PE valuation in 24 years, and maintain the “gain” rating.

Risk warning: risks in the shipping industry, risks in the automobile industry, risk of price fluctuations of major raw materials, risk of exchange rate fluctuations.