Brief performance review

On August 30, the company released its 24-year report. 1H24 achieved revenue of 24.861 billion yuan, +16.63% YoY; net profit to mother 0.475 billion yuan, +65.73% YoY. The company achieved revenue of 13.459 billion yuan in 2Q24, +10.74% year on year; realized net profit of 0.387 billion yuan to mother, +53.09% year over year, a high increase in performance.

The performance in the first half of the year was high, and the marine low-speed diesel engine business performed well. According to the company announcement, 1H24's shipping and maritime business achieved revenue of 10.958 billion yuan, +31.05% year-on-year, and signed new contracts of 12.136 billion yuan, or +18.56% year-on-year. In terms of low-speed engines, the company produced 224 low-speed marine diesel engines in the first half of the year, +14.87% compared to the same period, and signed 242 new low-speed marine diesel engines, +21.61% compared to the same period last year. At the same time, the company successfully delivered the first domestic methanol dual-fuel low-speed engine in the first half of the year, and the 1H24 marine dual-fuel low-speed engine increased by 119.34% year-on-year (in terms of power). Benefiting from the outstanding performance of the low-speed diesel engine sector, the company 1H24 achieved net profit of 0.387 billion yuan to mother, +53.09% over the same period last year, and a high increase in performance.

Backed by the upgrading of China Shipbuilding Group+ dual-fuel technology, I am optimistic that the company's ability to take orders will improve. The company is the world's leading marine low-speed diesel engine. It is backed by China Shipbuilding Group, the world's largest shipbuilding group, and has a high degree of certainty in ship engine orders. In addition, the company is leading in dual-fuel engine technology, delivering many of the world's first dual-fuel low-speed diesel engines in 23 years. The first domestic methanol dual-fuel low-speed engine produced by the company successfully achieved dual-fuel mode supply and train operation. In the future, it is expected to become the earliest methanol dual-fuel low-speed engine manufacturer with continuous delivery capacity in China, further enhancing the ability to take orders for dual-fuel engines. According to the 23 annual report, the domestic share of the company's low-speed marine diesel engines increased to 78%, and the international share to 39%.

Engine prices have increased and steel prices have remained low, and I am optimistic that the company's profitability will continue to increase. According to Clarkson, benefiting from the upward shipbuilding cycle, global new shipbuilding prices have continued to rise in recent years. As of 7M24, the global new shipbuilding price index reached 187.98, +9.05% year-on-year. The rise in shipbuilding prices is expected to drive up ship engine prices. According to the International Shipping Network, the price of dual-fuel engines is more than 20% higher than that of traditional diesel engines, and the increase in the penetration rate of dual-fuel engines is expected to drive a structural increase in the company's engine prices. Furthermore, the main raw material for diesel engines and other equipment is steel. According to iFind, the comprehensive steel price index has shown a significant downward trend since September '21. As the pressure on raw material costs slows down and the price of superimposed diesel engines rises, I am optimistic that the company's profitability will continue to increase.

We expect the company's revenue for 2024-2026 to be 52.6/61.1/70.9 billion yuan, net profit to mother of 1.15/1.938/2.977 billion yuan, corresponding PE of 42/25/16X, maintaining the “gain” rating.

Risk warning

Raw material price fluctuations, RMB exchange rate fluctuations, growth of new orders falling short of expectations, and lower implementation of carbon emission reduction policies than expected risks