occurrences

On September 2, the company and China Heavy Industries signed the “Intent Agreement on Absorption and Merger”. The company plans to absorb and merge China Heavy Industries by issuing A-shares to all shareholders of China Heavy Industries. In order to avoid abnormal stock price fluctuations, trading of the company's securities has been suspended since the opening of the market on September 3. It is expected that trading will not be suspended for more than 10 trading days.

Management analysis

North-South Shipbuilding suspended trading and restructuring, and is optimistic that the company's future operating efficiency will improve. According to the company's announcement, in June '21, China Shipbuilding Group promised to resolve competition issues in the industry through asset restructuring and other means within five years. On September 2, '24, the company and China Heavy Industries signed the “Intent Agreement on Absorption and Merger”. The company plans to absorb and merge China Heavy Industries by issuing A-shares to all shareholders of China Heavy Industries. China Shipbuilding Group's internal process to resolve competition issues in the industry is accelerating, and we are optimistic that the company's future operating efficiency will improve.

The order structure has been optimized, and the proportion of high-end ship models has increased. According to the company announcement, 1H24 grasps the trend of high-end, intelligent and green shipbuilding industry and strengthens batch acceptance of medium and high-end ship types. In the first half of the year, the company received orders for 109 civilian ships/8.5577 million DWT/68.425 billion yuan, and the tonnage was +38.21% over the same period. Among the new ship orders, there are mainly 35 oil tankers, 31 bulk carriers, 18 liquefied gas carriers, 14 PCTC carriers, and 10 container ships; green ships account for more than 50%, middle and high-end ships account for more than 70%, and batch orders account for more than 70%. By the end of June '24, the company had ordered 322 ships/23.6218 million DWT/199.639 billion yuan.

The gap between shipbuilding prices and steel prices has widened, and China's share of shipbuilding has increased, so I am optimistic that the company's profitability will continue to increase in the future. On the price side, according to Clarkson statistics, the global new shipbuilding price index has continued to rise since 2101. In July '24, the global new shipbuilding price index reached 187.98, +9.05% year over month, +0.40% month over month, and 50.31% higher than the bottom of 2020. Among them, the container ship/bulk carrier/tanker/gas carrier price index increased 10.36%/6.75%/8.34%/8.23% year on year, respectively. On the cost side, the average price of 20mm shipbuilding boards in Shanghai in July was -11.47% year-on-month and -4.88% month-on-month, and the scissor gap between ship prices and steel prices continued to widen. In terms of share, the share of 1-7M24 Chinese shipbuilding orders reached 72.63% (according to DWT caliber), up 8.03 pcts from 64.60% at the end of 23. China's shipbuilding share increased, and I am optimistic that the company's future profitability will continue to increase. Profit forecast, valuation and rating We expect the company's revenue for 2024-2026 to be 83.5/93.2/104 billion yuan, net profit to mother of 5.587/8.459/11.828 billion yuan, corresponding PE is 28/18/13X, maintaining the “buy” rating.

Risk warning

There is a risk that raw material prices will fluctuate, the RMB exchange rate will fluctuate, the growth rate of new orders will fall short of expectations, and that implementation of carbon emission reduction policies will fall short of expectations.