Key points of investment

The company's 2024H1 revenue increased 17% year on year, net profit to mother increased 66% year on year. The company released the 2024 semi-annual report, achieving operating income of 24.9 billion yuan, up 17% year on year, achieving net profit to mother of 0.48 billion yuan, up 66% year on year, gross sales margin of 11.84%, +0.29 pcts year on year, and net sales interest rate of 3.14% year on year, and +1.25 pcts year on year. 2024Q2 achieved operating income of 13.5 billion yuan, up 11% year on year, achieved net profit of 0.39 billion yuan, up 52% year on year, gross sales margin of 12.84%, +0.59 pcts year on year, net sales margin of 4.44%, +1.5pcts year on year. Driven by the boom in the shipping industry, the company's shipping and maritime business continued its rapid growth trend. During the reporting period, the company's shipping and maritime business revenue was 11 billion yuan, up 31% year on year, and new contracts were signed at 12.1 billion yuan, up 19% year on year.

The main reasons for the increase in the company's performance are: 1. Increased delivery orders from diesel engine subsidiaries and increased contract settlement; 2. The company's marine machinery sales scale has expanded, and product orders with high gross margins have increased, and profits have increased year-on-year.

The company is the only listed marine power platform under China Shipbuilding Group. It is the world's leading marine power system development and production company. The power business covers seven major power sectors and related auxiliary equipment. The products have high performance and high added value, strong market competitiveness, and broad application scenarios. The company is a leader in multiple segments, focusing on asset integration in the diesel engine business, further expanding its business scale and consolidating its leading position in the market.

Shipbuilding industry: rising boom, improving profits

Core drivers of the industry: (1) upward cyclical sentiment, rising demand for multiple ship types, improvement in shipyard profitability; 1) demand: volume -- 2024H1 China's new shipbuilding orders of 54.22 million dwt, up 44% year on year; China's new shipbuilding orders account for 75%, 55%, and 59% of the world, respectively. The leading position is stable, and there is plenty of room for long-term growth; 2) Demand: Price --- Clarkson's new ship cost index closed at 188 points in July 2024, at a historical peak, including 98% General inflationary pressure, including labor costs, has pushed ship prices to continue to reach new highs; 3) Downstream capacity - tankers will still be scarce until 2025, and there is plenty of room to place orders; 4) Supply: Shipyard shipments are almost saturated, but the number and delivery volume of active shipyards have declined significantly, and supply and demand are tight or driving ship prices to continue to rise; trend judgment: the cycle is expected to fluctuate upward over the long term. The high boom continues, and leading shipbuilding companies and upstream core supporting companies in the entire industry chain are highly flexible.

Profit forecasting and valuation

The company's net profit for 2024-2026 is expected to be 1.29, 2.16, and 3.13 billion, up 66%, 67%, 45% year on year, and PE37, 22, 15 times. As a marine engine leader, the company will significantly benefit from the upward trend in the industry over the long term, continue to improve profits and deliver results, and maintain a “buy” rating.

Risk warning: There are risks such as shipbuilding demand falling short of expectations and fluctuations in raw material prices.