Incident: The company achieved net profit of 1.412 billion yuan in the first half of 2024, an increase of about 155.33% over the previous year. Net profit after deducting non-return to mother was 1.198 billion yuan, compared to -0.117 billion yuan in the same period last year. In Q2 2024, net profit attributable to mother was 1.011 billion yuan, after deducting non-attributable net profit of 0.86 billion yuan.

High-priced orders are gradually delivered, and performance delivery is gradually accelerating. According to Clarkson data, the Clarkson New Shipbuilding Index began growing in 2021, with year-on-year increases of 22.3%, 5.3%, and 10.2%, respectively; 2024Q2 increased 4.97% month-on-month from the end of 2023 to 187.23 points, up 49.06% from the end of 2020. Orders that began to increase in price in 2021 will mainly be delivered in 2023. According to Clarkson data, according to CGT, it is estimated that the main orders delivered by Chinese ships in 2024 are 2021 orders, accounting for 69.74%, and the remaining 30.26% are all 2022 orders, with shipping prices higher than those delivered in 2023. At the same time, the proportion of high-value ships delivered by Chinese ships will increase in 2024. We expect that container ships with higher ship value will increase from 35.24% in 2023 to 47.91% in 2024. It fell 20.50% for the full year to 12.41% for the full year of 2024. According to the company's annual report and quarterly report, net profit from non-return to mother was corrected in Q4 of 2023, achieved a sharp increase of 146.72% month-on-month in Q1 in 2024, and a sharp increase of 154.44% month-on-month for 2024Q2, and continued to deliver results.

The upward cycle was full of high-priced orders, and forward profits continued to improve. Since 2022Q4, the driving force for new ship price growth has gradually shifted from being market-driven to the demand for green renewal. Due to the tight production capacity of shipyards, new green orders (new shipbuilding orders using alternative fuel engines) continue to be released under the major green shipping trend, so that new shipbuilding prices can continue to grow against the backdrop of a sharp decline in the shipping market in 2023, and order coverage remains high. Since Q4 2023, the impact of the Red Sea incident and the rising sentiment in the oil dispersion market have led to a recovery in the shipping market. According to Clarkson, from Q4 2023 to Q2 2024, the Clarksea Index grew 27.30%, the New Shipbuilding Index grew 6.76%, and the order coverage rate remained around 3.53. Since 2022Q3, shipbuilding steel plate prices have shown a downward trend. The RMB to US dollar exchange rate is high, while new shipbuilding prices have continued to rise due to tight production capacity, which is good for shipyard's future RMB performance.

The company is full of orders, and the delivery period for on-hand orders is scheduled for 2027-2028. 2024 is the first year of proven performance flexibility. Looking ahead to Q3/4 results, the share of new orders signed in 2022 (shipping prices are higher than in 2021) will gradually increase. 2024Q1-Q4 was 5.93%/18.88%/27.66%/67.50%, respectively. A sharp month-on-month increase after deducting non-profit can still be expected.

Profit forecast and investment perspective: China Shipbuilding is one of the largest domestic flagship shipbuilding companies with the most advanced technology and the most complete product structure. We expect China Shipping's 2024-2026 revenue to be 90.888, 90.218, and 108.241 billion yuan, respectively, and net profit to mother of 5.112, 9.289, and 13.323 billion yuan respectively, corresponding to PE 33.57, 18.47, and 12.88 times, respectively. Maintain a “buy” rating.

Risk warning: Steel prices rose more than expected; RMB to US dollar exchange rate fluctuations; shipping industry sentiment fell short of expectations; IMO environmental restrictions fell short of expectations; risk of global recession and stagnation.