Key points of investment

Results for the first half of 2024: up 9.5% year on year; HAECO's revenue increased 49%, gross profit margin was 17.2% 1) Performance: revenue of 17.2 billion yuan, up 28.5% year on year; net profit to mother was 0.31 billion yuan, up 9.5% year on year. In the Q2 quarter, revenue was 8.78 billion yuan, up 18.9% year on year; net profit to mother was 0.14 billion yuan, down 9.1% year on year.

The company continues to focus on the two core sectors of HAECO and Offshore Engineering. (1) HAECO sector: revenue for the first half of the year was 9.9 billion yuan, up 48.6% year on year; (2) Offshore equipment: revenue for the first half of the year was 4.76 billion yuan, up 55.9% year on year.

2) Profitability: gross profit margin in the first half of the year was 12.1%, down 0.5 pct year on year; net profit margin was 2.4%, down 0.3 pct year on year. In Q2 alone, gross profit margin was 13.5%, up 2.3 pct year on year; net profit margin was 2.4%, down 0.3 pct year on year.

By business sector: (1) HAECO sector: gross profit margin of 17.2% in the first half of the year, an increase of 0.9 pct compared to 2023; (2) Offshore equipment: gross profit margin of 1.6% in the first half of the year, a decrease of 3.6 pcts compared to 2023.

3) New orders: In the first half of the year, the HAECO business signed new orders of 2.464 billion US dollars, a year-on-year decrease of 10.7%; the offshore equipment business signed new orders of 0.92 billion US dollars, a year-on-year decrease of 9.6%. The steel structure business signed a new order of 0.26 billion US dollars, an increase of 12.9% over the previous year.

4) R&D side: 0.63 billion yuan in the first half of the year, a year-on-year increase of 40%, accounting for 3.6% of revenue. The company grasps the development direction of “high-end, intelligent and green” equipment manufacturing to overcome large-scale, efficient, green and low-carbon core technologies for port machinery.

5) HAECO Aftermarket Service: At sites around the world, the company has a service team of more than 1,000 highly qualified professionals, which can provide efficient solutions and perfect spare parts service support, and deliver to the world in the shortest possible time. The company's holding subsidiary Terminexus has built the HAECO industry's first digital supply chain platform.

Zhenhua Heavy Industries: Global HAECO leader+offshore equipment leader, benefiting from improved cycle, category expansion, and optimized governance 1) Port Machinery: The company is a global leader with a market share of 70%, benefiting from automation upgrades, category expansion, and post-market services. The company has had the highest market share in the world for 26 consecutive years, and has maintained a market share of over 70% since 2006. In 2011-2023, HAECO's new orders increased from $2.46 billion to $3.61 billion, CAGR = 3.2%. The company occupies a leading position under the trend of large-scale expansion and automation. In the future, it is expected that space will continue to open up if it relies on Dagang Machinery's leading position and extends to multiple product categories and aftermarket services.

2) Offshore equipment: The company is a leading enterprise, order CAGR = 21% in the past 6 years. The company has offshore EPCI general contracting capabilities, and has the ability to design and manufacture jack-up drilling platforms and offshore special ships and develop core components. Offshore equipment orders increased from $0.58 billion in 2018 to $1.51 billion in 2023, and the 2018-2023 order amount CAGR = 21%.

Investment advice: The world's leading HAECO + offshore equipment leader continues to open up room for growth. The company's net profit is expected to be 0.81/0.88/1.085 billion yuan in 2024-2026, up 56%/9%/23% year-on-year, corresponding to PE22/21/17 times, corresponding to PE22/21/17 times, and PB 1.10/1.04/0.98 times. Maintain a “buy” rating.

Risk warning: risk of macro-environmental fluctuations, interest rate and exchange rate risk, supply chain security risk.