Global container demand has begun to recover. CIMC Group was founded in Shenzhen in January 1980 as a joint venture between China Merchants Bureau and Baolong Bank of Denmark. Currently, it is mainly engaged in the manufacture and service of containers, road transport vehicles, energy/chemical/liquid food equipment, marine engineering equipment, and airport equipment. In 2019-2021, benefiting from rising demand for shipping, the volume and price of the company's container business rose sharply. The revenue share increased from 22.57% to 40.3%, and the gross margin increased from 6.89% to 25.64%, driving the company's overall gross profit margin and net profit margin from 14.5%/2.9% to 18%/5.1%. In 2022, with the return to normalization of shipping demand, the shortage of containers changed, leading to pressure on the overall net margin margin. In the first three quarters of 2023, the company's gross margin/net margin was 13.7%/1.5%, respectively. Demand for containers has bottomed out, and 2024 is expected to enter an upward phase of the cycle. The last round of upward cycle began in 2019 and peaked in 2021. The core driving factors were uneven economic recovery in various regions of the world, delays in shipping schedules caused by port congestion or closure, compounded by shipping companies cutting capacity on major routes. Overall, container capacity was tight, thus driving up container freight rates and demand. Global container production in the first half of 2023 was just 850,000 TEU, hitting a nearly 10-year low. Considering the moderate recovery of the global economy and resilient demand for shipping, the container industry is expected to gradually ease replacement demand in 2021 due to overbought overpurchases. Referring to past cyclical fluctuations in the industry, the container manufacturing industry is expected to enter an upward cycle in 2024.

The offshore business is expected to reach a turning point in profit and loss. The company mainly operates marine engineering business through CIMC Raffles in Yantai, and is divided into marine oil and gas, marine clean energy and special equipment: 1) Oil and gas products include drilling platforms, FPSO and other oil and gas production and storage platforms, which benefit from the recovery in offshore oil extraction demand; 2) Marine clean energy products include wind power installations such as offshore wind power installation vessels, modular booster stations, fixed conduit frames, etc., and also lays out semi-submersible photovoltaic installations and renewable energy hydrogen-methanol plants, benefiting from the steady growth of offshore wind construction; 3) Special equipment products include roll-over vessels and special engineering vessels Among them, Ro-Ro ships use new energy Ro-Ro ships mainly transport cars, benefiting from China's new energy vehicles going overseas. The company's offshore business is expected to reach an inflection point in profit and loss.

The road transport aircraft energy equipment business is growing steadily. The company's road transport vehicle operator is the holding subsidiary CIMC. From 2022 to 2023, semi-trailers performed well in overseas markets, and revenue declined in the domestic market due to the downturn in the commercial vehicle market. With the recovery of the domestic commercial vehicle market, we expect the company's domestic semi-trailer business to recover as well. The main energy equipment company is Enrico, a Hong Kong stock listed company. Its business scope covers the three major fields of clean energy, chemical environment, and liquid food, benefiting from the release of demand in industries such as LPG, hydrogen energy, and new energy sources.

Investment advice: Based on the company's main business to usher in restorative growth, new business progress is in full swing. We predict that the company's net profit for 2023-2025 will be 2.78/31.32/4.293 billion yuan, respectively, with year-on-year growth rates of -91.4%/1028.4%/37.1%, respectively. The corresponding PE is 173X/15X/11X, respectively. Covered for the first time, giving it a “Recommended” rating.

Risk warning: the risk of economic cycle fluctuations, the risk of trade protectionism and anti-globalization, the risk of price fluctuations of major raw materials, and the risk of exchange rate fluctuations.