Event: The company announced 2024H1 results.

The performance exceeded expectations, and the profit of the diesel engine business increased markedly

The company achieved revenue of 24.861 billion yuan in 2024H1, an increase of 16.61% year on year; achieved net profit of 0.475 billion yuan, an increase of 65.7% year on year; realized net profit after deducting non-return to mother of 0.419 billion yuan, an increase of 206.66% year on year. The high increase in the company's performance in this period was mainly due to an increase in orders delivered by diesel engine subsidiaries and the expansion of marine machinery sales scale. Among them, the offshore platform and port equipment business achieved revenue of 3.2 billion yuan, an increase of 30.25% year on year; the diesel engine business achieved revenue of 10.977 billion yuan, an increase of 24.44% year on year, and a gross profit margin of 15.22%, up 2.28 pcts year on year. The core holding subsidiary CRIC Diesel achieved main business revenue of 11.114 billion yuan, an increase of 22.16% year on year; operating profit of 0.592 billion yuan, an increase of 227.68% year on year.

Looking at a single quarter, 2024Q2 achieved net profit of 0.366 billion yuan after deducted non-return to mother (0.371 billion yuan) in 2018Q2, an increase of 208.61% year-on-year and 583.58% month-on-month. With subsequent batch delivery of high-value diesel engines, the company's profit is expected to maintain rapid growth for a long time.

Net operating cash flow increased, and the company's development momentum was sufficient

The company's net cash flow from operating activities in the first half of the year reached 4.768 billion yuan, an increase of 252% over the previous year. The cash balance at the end of the reporting period was $23.331 billion, an increase of $2.979 billion over the beginning of the period. We believe that on the one hand, sufficient cash flow will help the company to reserve raw materials such as steel, crankshafts, etc. during the current period of low cost and price; on the other hand, it will also help the company increase production capacity in the current situation where global shipbuilding production capacity is tight, transform to high-end, green, and intelligent, and continue to improve global competitiveness.

Focusing on the future of research and development, green fuel ship replacement is one of the most effective ways for shipowners to respond to IMO emission reduction requirements by opening up long-term upward channels. According to Clarkson statistics, 41% of the world's new shipbuilders in the first half of the year were dual-fuel/dual-fuel reserved ships, including 109 LNG dual-fuel ships, 49 methanol dual-fuel ships, 15 liquid ammonia dual-fuel ships, 42 liquefied petroleum gas ships, and 4 hydrogen ships. As of August 31, dual-fuel vessels accounted for 7.1% (gross tonnage) of the global fleet. Clarkson expects this ratio to exceed 20% by 2030. The dual-fuel ship replacement market will open up a long-term upward channel for the company.

The company seizes historical opportunities and focuses on the “dual carbon strategy” to accelerate the greening process of equipment manufacturing. Marine dual-fuel low-speed engines increased 119.34% year-on-year (in terms of power) during the reporting period. While ensuring delivery, the company focused on independent brand R&D. In the first half of the year, R&D investment was 26.14 million, an increase of 26.14% over the previous year, and product innovation achieved remarkable results. During the reporting period, the company successfully delivered the first domestic methanol dual-fuel low-speed engine; completed the delivery of the first domestic 7S60ME-C10.5-GI-HPSCR dual-fuel engine and the first domestic 6G50ME-C9.6-LGIM-EGRBP methanol dual-fuel low-speed engine; completed the manufacture of cylinder liners and cylinder heads, the key components of the world's first X92DF-M methanol fuel engine; completed performance verification of the self-developed shipborne carbon capture system and signed an actual application agreement for the shipborne carbon capture system. Relying on strong market advantages and accumulated R&D advantages, the company is expected to obtain excessive profits in future market competition.

The fund-raising project may reach production. The marine low-speed engine sector is expected to further improve the company's fund-raising projects under construction. Among them, the “production layout adjustment and supplementary facility construction project” has a total investment of 0.334 billion yuan, which is expected to reach production in December 2025. It will “help improve the processing quality of heavy parts of low-speed diesel engines and ensure the test delivery of low-speed diesel engines”; the “marine low-speed engine support and after-sales service guarantee capacity building project” has a total investment of 0.3 billion yuan, which is expected to reach production in December 2024. It will help open up an integrated link in the marine low-speed engine business from production to after-sales. We believe that with the support of two fund-raising projects, the company's marine low-speed engine business is expected to be further improved, and its market competitiveness is expected to further improve.

Profit forecast: As the only marine power listing platform under China Shipbuilding Group, the company is expected to fully benefit from the upward trend in the marine industry over a large cycle. As high-value orders continue to be delivered, the company's profits will further increase. We forecast the company's 2024-2026 revenue of 55.058/66.332/79.679 billion yuan, net profit to mother of 1.408/2.29/3.097 billion yuan, corresponding PE of 34.12/20.98/15.51X, maintaining the “recommended” rating.

Risk warning: macroeconomic fluctuation risk, raw material price fluctuation risk, exchange rate fluctuation risk