Incident: China Dynamics released its 2024 annual report and 2025 quarterly report. In 2024, it achieved revenue of 51.697 billion yuan, +14.62% year-on-year, and net profit of 1.391 billion yuan to mother, +78.43% year-on-year. 2025Q1 achieved revenue of 12.311 billion yuan, +7.98% year over year, and net profit of 0.396 billion yuan to mother, +348.96% year over year.
The shipbuilding business has exceeded its annual plan. In 2024, the sales volume and price of marine low-speed engines soared, and China's position as a major shipbuilding country was further consolidated. The market share ranked first in the world for 15 consecutive years, and the number of new orders received (in terms of DWT) accounted for 74.1% of the world's total. Driven by the boom in the shipping industry, the company achieved revenue of 51.697 billion yuan, +14.62% year over year, signed new contracts of 54.352 billion yuan, -11.06% year over year, and handheld contracts (end of 2024) 58.555 billion yuan, -0.56% year over year. The main reasons for the increase in the company's performance in 2024 are: 1) The sales scale of the subsidiary in the diesel engine sector continued to grow in 2024, the price of the main product, marine low-speed engines, increased, and the gross margin increased. 2) The company's marine machinery sales scale expanded, product orders with high gross margins increased, and profits increased year-on-year.
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1) Shipbuilding and marine industry: The company's shipbuilding industry has maintained a high level of prosperity. The low-speed engine has completed more than 10 million horsepower for two consecutive years, and several of the world's first projects have been launched; orders for medium speed motors have exceeded 1,100 units, and independent brand medium speed motors have achieved zero breakthroughs in the ocean market. The company's diesel engine after-sales service capabilities continue to improve. A global service system has been initially established, forming a “1+8+20” global service network layout. The annual diesel engine after-sales service revenue is nearly 1.5 billion yuan, an increase of nearly 25% over the previous year.
In 2024, the annual planned completion rate of the company's shipbuilding and marine industry revenue was 127.10%, and the annual plan completion rate for newly signed contracts was 141.56%.
2) Application industry: Competition in the domestic consumer market intensified in 2024, putting some pressure on the company's application industry production and operation. The company continues to strengthen technological innovation, develop differentiated marketing strategies, and increase market share. The company signed a new contract of 21.755 billion yuan for the application industry and basically completed the annual plan.
3) Defense industry: The company continues to strengthen the schedule of scientific research and production tasks, and its ability to perform contracts has been further improved to ensure the completion of annual military research and production tasks. The completion rate of the company's annual plan for new contracts in 2024 exceeds 120%.
The company's net interest rate was +2.59pcts year-on-year, and profitability continued to increase
In 2024, the company's gross profit margin was 14.81%, +1.52pcts year on year, net profit margin 4.94%, +2.59pcts year on year. The cost rate for the period was 9.88%, -1.23 pcts year on year. Among them, the sales expense ratio was 0.78%, -0.84 pcts year on year, management expense ratio 4.94%, -0.07 pcts year on year, financial expense ratio -0.56%, and -0.37 pcts year on year. The increase in the company's profitability stems, on the one hand, from improving quality and efficiency and strengthening cost control, and on the other hand, from increasing the share of high-margin products and optimizing the structure. In terms of research and development, the company completed the full load test of the world's first 10X92DF-M-LPSCR methanol dual-fuel engine, completed the ignition test of the first domestically developed methanol fuel low speed test machine, completed the development of the world's first 6G70ME-C10.5-LGIA-HPSCR ammonia dual-fuel marine low-speed engine, completed the research and development of the self-developed SXD6L40/52G gas engine, and completed the self-developed CHD416V16 diesel engine performance prototype reliability test. CHD416V12 Due to the impact of environmental emission reduction policies, it is expected that the share of dual-fuel engine orders and deliveries will increase in the future, which is expected to optimize the company's revenue structure and drive further improvement in corporate profitability.
The first quarter had a good start, and the “cost engineering” effect was remarkable
In the first quarter of 2025, the production and sales volume of the company's diesel engine division subsidiary increased sharply year-on-year, delivery orders increased, contract settlement increased, and the company's revenue was +7.98% year-on-year. According to China Dynamics's WeChat account, the number of low-speed engines delivered by the company's subsidiary CSSC Engine increased by 21.4% and 19.1% year-on-year respectively in the first quarter. Among them, the number of dual-fuel low-speed engines delivered and horsepower increased by 100% and 90%, respectively. On the other hand, the company reduced costs and increased efficiency through the implementation of “cost engineering”, and its profitability was further improved. 25Q1, the company's gross profit margin was 16.18%, +5.52 pcts year on year, and the net profit margin was 6.26%, and +4.66 pcts year on year.
The shipping industry cycle is upward, and the mismatch between supply and demand drives the industrial chain to continue to benefit. The shipping industry is currently in an upward phase of this cycle. Volume: According to China Shipping News data, in January-January 2025, China's shipbuilding completion/new orders/handheld orders were 7.3/4.6/246 million dwt, respectively, -20.65%/-58.56%/+54.81%, accounting for 49.00%/61.40%/67.20% of the global share. The three major indicators are at a high level. Price: According to China Shipping News, Clarkson's new ship price index for February 2025 was 188.36, up 3.84% year on year and down 0.54% month on month. Strong demand: 1) demand for renewal due to the aging of the fleet; 2) environmental protection and emission reduction policies accelerate fleet renewal; 3) global geopolitical instability has lengthened routes and increased demand for capacity. Insufficient supply: Global shipbuilding production capacity withdrew during the downturn of the previous cycle and was unable to match the rapidly rising demand when the new cycle arrived. The market pattern, which is in short supply, is difficult to change in the short term. We believe that the marine market is expected to maintain a good boom in the future, and power systems, as the core equipment for ship operation, will continue to benefit.
Investment recommendations:
Currently, the shipping industry is in this upward phase of the cyclical boom, and the industrial chain will continue to benefit. As the core force of research and production of marine power systems in China, the company's market share and profitability are expected to increase further in the future under the influence of multiple factors such as mismatch between supply and demand and implementation of environmental protection and emission reduction policies. We expect the company's revenue from 2025 to 2027 to be 64.32/78.25/91.96 billion yuan, up 24.4%/21.7%/17.5% year on year; net profit from 2025 to 2027 will be 2.14/3.02/3.92 billion yuan respectively, up 54.0%/41.1%/29.6% year on year, and the target price for 6 months is 24.70 yuan, corresponding to 26xPE in 2025, giving a “increase in holdings -A” rating.
Risk warning: Risk that macroeconomics falls short of expectations; raw material prices and exchange rate fluctuations; environmental policies fall short of expectations; risk that profit forecasts fall short of expectations.
