On October 30, the company released its quarterly report for the year 24. 24Q1-Q3 achieved revenue of 56.169 billion yuan, +13.12% year over year; realized net profit of 2.271 billion yuan, -11.35% year over year; and realized net profit of 1.972 billion yuan after deduction of non-return to mother, which changed from negative to positive year. Among them, Q3 achieved revenue of 20.152 billion yuan, or +5.35%; realized net profit attributable to mother of 0.858 billion yuan, or -57.26% year-on-year; realized net profit without deduction of 0.773 billion yuan, which changed from negative to positive year-on-year.

The handheld order structure was improved, and gross margin increased steadily. According to the company's announcement, benefiting from the improvement of the company's on-hand order structure, the gross profit of completed and delivered ships increased year-on-year. The company's net profit after deducting non-return mother was 1.972 billion yuan in 1-3Q24, which changed from negative to positive year-on-year. Over the past 24 years, the company's gross margin has increased steadily. 3Q24 was 11.62%, up 4.4 and 2.8 pcts from Q1 and Q2, respectively.

The gap between shipbuilding prices and steel prices is widening, and I am optimistic that future profitability will continue to increase. On the price side, according to Clarkson statistics, the global new shipbuilding price index has continued to rise since 21Q1. In September '24, the global new shipbuilding price index reached 189.96, +8.32% year over month, up 6.50% from the beginning of the year, and 51.89% from the bottom of 2020. Shipbuilding prices continued to rise.

In September, the average price of 20mm shipbuilding boards in Shanghai was -19.59% year-on-month and -2.99% month-on-month. The scissor gap between ship prices and steel prices continued to widen, and I am optimistic that the company's profitability will continue to increase.

China's shipbuilding competitiveness improved, and the three major shipbuilding indicators improved year-on-year in January-September. According to the China Shipbuilding Industry Association, from January to September 2024, China's shipbuilding completed capacity was 36.34 million DWT, +18.2%; new orders received 87.11 million DWT, +51.9% YoY; by the end of September, the number of hand-held orders was 193.3 million DWT, +44.3% YoY. From January to September, China's three major shipbuilding indicators accounted for 55.1%, 74.7%, and 61.4% of the world's total volume in terms of DWT, all ranking first in the world.

The share exchange will absorb and merge with China Heavy Industries, and I am optimistic that the company's leading position and profitability will increase. Both the company and China Heavy Industries are leading domestic shipbuilding companies. After the merger, the two sides will achieve complementary advantages, exert synergy effects, and improve operational efficiency and overall competitiveness. According to the announcement of the company and China Heavy Industries, the global new ship was completed and delivered 86.34 million dwt in 2023, and the company and China Heavy Industries delivered 753.49 and 4.839 million dwt of civilian ships respectively, with shares of 8.7% and 5.6% respectively, for a total global share of 14.3%, which is highly competitive. At the same time, the merger is expected to have a scale effect, further enhancing the company's leading position and profitability.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue to be 83.5/93.2/104 billion yuan in 2024-2026, net profit to mother of 4.488/8.25/11.214 billion yuan, and the corresponding PE is 39/21/15X, maintaining a “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.