Description of the event

China Heavy Industries announced its results for the first half of 2024. 2024H1 achieved revenue of 22.102 billion yuan, up 31.05% year on year, and achieved net profit of 0.532 billion yuan, up 177.13% year on year; 2024Q2 achieved revenue of 11.935 billion yuan, +18.84% year over year, and achieved net profit of 0.397 billion yuan to mother, an increase of 215.97% year on year.

Incident comments

The company has adapted to the trend of tanker recovery and has consolidated its market position by taking batch orders for superior ship types. The company has a comprehensive layout in the military and civilian products business. In terms of civilian products, it has obvious advantages in the fields of VLCC, 10,000-tank container ships, Cape of Good Hope bulk carriers, LR2 refined oil tankers, and large LNG carriers. The 24H1 company continued to make efforts around the main construction types and undertook high-quality batch orders. In the first half of the year, it received 68 civilian ship orders, up 83.8%/230.6%/130.2%, respectively, and the growth rate of new orders accelerated; 24H1 completed a total of 26 civilian ships/2.773 million DWT/0.843 million revised total tons (up 10.5% year on year). At the same time, the company's new orders showed characteristics such as batching, greening, and high-end production. Main construction models accounted for more than 90% of orders, batch orders accounted for more than 90%, and green ships accounted for more than 60%, further enhancing its competitive advantage in the market. 24H1's main ship types, such as large LNG carriers and oil dispersers, have all been ordered in batches. For example, Dalian Shipbuilding and European shipowners have signed multiple VLCCs and LNG dual-fuel VLCCs in batches, accounting for 28% of the number of new VLCCs signed globally. The market share has further increased, and the position of superior ship models continues to be consolidated; the Yamashen Heavy Industries 7100TEU container ship achieved early batch delivery, and production efficiency and efficiency continued to improve. The company's main ship models are in line with the trend of tanker recovery. Batch orders help the company optimize production efficiency and achieve rapid delivery, and the profitability of the shipbuilding business is expected to continue to improve.

Production capacity in China's shipbuilding industry continues to be tight, and the company's acquisition of Hong Kong Shipbuilding Heavy Industries has a long-term development layout. There is a clear upward trend in the global shipbuilding industry. According to Clarkson, as of June 2024, the new ship price index has reached 187.2 points, and shipping companies are full of orders. Production schedules have reached 2028. Supply chain pressure is high, and production capacity continues to be tight. According to data from the China Shipbuilding Industry Association, in the first half of 2024, China's shipbuilding completed volume was 25.02 million dwt, an increase of 18.4% over the previous year; new orders of 54.22 million dwt were received, an increase of 43.9% over the previous year. By the end of June 2024, the number of hand-held orders for Chinese ships was 171.55 million dwt, an increase of 38.6% over the previous year. In terms of DWT, China's shipbuilding completion volume, new orders, and handheld orders account for 55%, 74.7%, and 58.9% of the world's total volume, respectively. Meanwhile, energy carrier orders in the first half of the year accounted for more than half of all new orders received. In terms of DWT, of the new orders received in the first half of the year, oil tankers rose 70.6% year on year, and liquefied gas carriers rose 99.5% year on year.

In order to ease the tight production capacity situation, China Heavy Industries Tianjin Shipyard acquired Hong Kong Shipbuilding Heavy Industries and Wushu Aviation Finance to further increase production capacity. After the Hong Kong Shipbuilding Heavy Industries transaction is completed, the annual production capacity is expected to increase by 2.4 million dwt. Under the upward trend in shipping prices, the increase in the company's core production capacity will effectively ease the tight production capacity situation in the shipbuilding industry. In the long run, it will help release orders and promote the company's competitiveness to continue to improve.

China Heavy Industries is one of the world's leading shipbuilding leaders, and the company will also clearly benefit from the upward trend in the shipping cycle. We expect the company to achieve net profit of 1.983 billion yuan and 4.034 billion respectively in 2024-2025, corresponding to PE of 57 times and 28 times, respectively, and continue to focus on recommending.

Risk warning

1. Risk of falling ship prices due to factors such as falling demand for shipping; 2. Risk of a sharp rise in steel prices and exchange rate fluctuations.