The military and civilian ships are leading in assembly, and the restructuring and expansion momentum is strong. China Shipbuilding was formerly known as Hudong Heavy Equipment, which was founded in 1998, and later merged related companies and listed on the Shanghai Stock Exchange. After the merger and asset restructuring of North-South Shipbuilding in 2019, the company changed from a civilian shipbuilding enterprise to a civil-military shipbuilding enterprise, holding the four major operating entities of Jiangnan Shipbuilding, Waigaoqiao Shipbuilding, Guangzhou Shipbuilding International, and CSIC Chengxi. At present, the company has become one of the largest shipbuilding flagship listed companies with the most advanced technology and the most complete product structure in China.

The green renewal cycle has begun, and shipbuilding leaders have taken advantage of the wind. Throughout the history of market development, the shipbuilding industry has experienced major cyclical fluctuations every 20-30 years, and is a typical cyclical industry. Demand side: Since 2023, the aging of the current fleet combined with the gradual tightening of the environmental protection and emission reduction strategy by IMO, demand for green ship renewal has surged, and ship prices have entered an upward cycle; supply side: After a 10-year cycle low, the post-pandemic order wave and green renewal orders have continued to strain the production capacity of global shipyards. The order coverage rate remains high, and the price of new ships continues to grow. At the same time, by comparing the highest ship prices in history after adjusting for inflation, there is still plenty of room for ship prices to rise. Currently, ship prices are rising, the US dollar is appreciating, and steel prices are falling, which is beneficial to the profits of Chinese shipyards. As China's leading shipbuilding leader, Chinese ships can be expected in the future.

Investment advice: China's core shipbuilding industry has entered an upward cycle, and the company's long-term profit continues to improve. We expect the company to achieve operating income of 90.89, 90.22, 108.24 billion yuan, and net profit of 51.1, 92.9, and 13.31 billion yuan respectively in 2024-2026. The PE corresponding to the current stock price is 35.5, 19.5, and 13.6 times, respectively. Considering that the green shipbuilding renewal cycle is still in the early stages, the new shipbuilding price and the corresponding long-term profit of the company still have a lot of room to improve, covered for the first time, giving it a “buy” rating.

Risk warning: steel price rises above expectations; RMB to US dollar exchange rate fluctuations; shipping industry sentiment falls short of expectations; IMO environmental restrictions fall short of expectations; risk of global recession and stagflation; risk of geopolitical risk; risk of asset restructuring