Incident: The company achieved net profit of 2.271 billion yuan in the first three quarters of 2024, a year-on-year decrease of about 11.35%. Net profit after deducting non-return to mother was 1.972 billion yuan, compared to -0.428 billion yuan in the same period last year. Net profit attributable to mother was 0.858 billion yuan in Q3 in 2024, or -57.26%, net profit after deducting 0.773 billion yuan. The net profit of non-return to mother was -0.311 billion yuan in the same period last year. The high base for disposal of offshore assets last year increased the gross profit margin. The three-fee rate dragged down the net interest rate: 24Q3 saw a sharp year-on-year decline in net profit due to the sharp year-on-year decline in net profit of 2.521 billion yuan from the disposal offshore platform in Q3 last year. According to Clarkson data, high-value orders signed in 2022 will gradually be delivered starting in 2023Q4, and while the proportion of high-value ships delivered by Chinese ships will increase in 2024. We expect the share of container ships, gas carriers, and automobile ships with higher ship value in deliveries (according to CGT) to increase from 49.73% in 2023 to 70.91% in 2024, supporting the company's 24Q1-Q3 gross margin to continue to increase month-on-month. The 24Q3 three-rate rate increased 2.04 percentage points month-on-month, hampering the net interest rate performance.

High price orders are plentiful + ship price upward cycle, and the company's forward profit continues to improve: since 2022/Q4, the driving force for new ship price growth has gradually shifted from market-driven to green renewal demand. Due to the tight production capacity of shipping, new green orders continue to be released under the general trend of green shipping, 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. The Red Sea incident catalyzed a new wave of new shipbuilding. Since this year, Clarkson's new shipbuilding prices have risen 6.32%, and order delivery is scheduled to reach 2027-28, and the order coverage rate has remained around 3.60. 2024 is the first year of proven performance flexibility. Looking ahead to 24Q4 and next year's results, the share of new orders signed in 2022 (the shipping price is higher than 2021) will gradually increase. 2024Q1-Q4 was 5.93%/17.76%/40.07%/57.29%, respectively. 2025 will mainly focus on delivery of new orders signed in 2023, and the continued increase in the company's profit performance can still be expected.

Absorb China Heavy Industries to enhance competitiveness and focus on the possibility of subsequent restructuring: On September 3, 2024, the company normally announced that it would absorb and merge China Heavy Industries through a share exchange, and initiated the first step for China Shipbuilding Group to resolve competition among its peers. This move will increase the ability of Chinese ships, which mainly build high-end ship models, to supplement the construction capacity of large bulk tankers, and increase their overall competitiveness in the international market. Follow up on whether China Shipping and other assets within the group, such as China Shipbuilding Defense (A+H), Hudong China (unlisted), are likely to be further restructured.

Profit forecast and rating: China Shipbuilding is one of the largest domestic flagship shipbuilding companies with the most advanced technology and the most complete product structure. We expect net profit to be 3.968, 8.483, and 11.096 billion yuan respectively (previous values of 5.112, 9.289, 13.323 billion yuan 1, corresponding PE 41.43, 19.37, and 14.81 times, respectively. Considering that the green ship cycle is still ongoing, the company expects profits to continue to increase and maintain a “buy” rating.

Risk warning: Steel prices rose more than expected: dollar exchange rate fluctuations in the People's Market; shipping industry sentiment fell short of expectations; IMC environmental restrictions fell short of expectations; risk of global recession and stagnation.