The restructuring of the southern and northern shipbuilding companies has begun, and the subsequent progress in asset restructuring is expected to accelerate, which will be long-term bullish for the optimization of the industry competitive landscape and enhance the profitability of shipbuilding companies.
According to Zhihui Financial APP, Guotou Securities released a research report stating that due to the decline in downstream freight rates and the advancement of the southern and northern shipbuilding restructuring, the range of increases for china cssc, china shipbuilding industry, cssc offshore & marine engineering (A), and china shipbuilding industry group power in Q3 2024 will be 3.14%/11.76%/-3.05%/24.36%, underperforming csi 300 except for china shipbuilding industry group power. Looking ahead, as of the end of H1 2024, china cssc/cssc offshore & marine engineering/china shipbuilding industry/yangtze river holds shipbuilding orders worth 199.6 billion yuan (civilian ships)/59.7 billion yuan/108.6 billion yuan/20.15 billion USD respectively, with abundant orders on hand. It is recommended to continue to focus on the release of shipbuilding company profits after the rise in volume and price and cost reduction, as well as the progress of china cssc's share swap and absorption merger with china shipbuilding industry.
Guotai Junan Securities' main points are as follows:
Overview of the market and operation for Q3 2024:
Market performance: In Q3 2024, the increases for china cssc, china shipbuilding industry, cssc offshore & marine engineering (A), and china shipbuilding industry group power are 3.14%/11.76%/-3.05%/24.36%. Due to declining freight rates and the advancement of restructuring, they underperformed csi 300 except for china shipbuilding industry group power. In terms of positions held, as of the end of Q3 2024, the market value of public funds in active equity positions for china cssc, china shipbuilding industry group power, cssc offshore & marine engineering A shares, and china shipbuilding industry was 93/3.31/1.09/2.31 billion yuan, with the number of public active equity funds held being 320/116/37/83 respectively, with a significant increase in positions for china shipbuilding industry group power.
Shipbuilding companies' performance: Benefiting from the simultaneous rise in volume and price plus improvements in quality and efficiency, although the specific civilian ship business growth rate cannot be accurately obtained due to the lack of detailed breakdowns in the consolidated statements of military and civilian business for each company, in terms of gross margin, china cssc, china shipbuilding industry, cssc offshore & marine engineering, and china shipbuilding industry group power had gross margins of 11.6%/12.5%/11.5%/14.9% respectively in Q3 2024, increasing by 2.7/0.8/4.9/2.0 percentage points quarter-on-quarter; in terms of profit, the quarterly non-recurring net income was 7.7/0.33/0.03/0.18 billion yuan, a year-on-year increase of 349%/189%/247%/72%; it is evident that profitability has gradually entered an upward channel.
Industry tracking and outlook:
New ship prices: According to Wind statistics, in October 2024, the index for new ship prices in china reached 1130 points, an increase of 6.0% since the beginning of the year. In Q3 2024, by ship type, bulk carriers and container ships saw slight increases to varying degrees.
New ship orders: According to Wind statistics, from January to September 2024, the global new ship orders totaled 128.66 million deadweight tons, a year-on-year increase of 61%. Among these, the new orders for oil tankers accounted for 33.23 million deadweight tons, up 71% year on year; the new orders for container ships totaled 2.98 million TEU, up 98% year on year, showing strong demand.
Shipping market: Starting in July 2024, the marginal impact of the Red Sea crisis began to weaken, coupled with relatively weaker exports, shipping rates started to decline. The Shanghai export container freight index dropped from 3734 points on July 5, 2024, to 2062 points on October 18, 2024, a decrease of 44.77%. It is recommended to continue observing freight trends and the potential dismantling demand for container ships.
Investment advice:
The average age of existing capacity is increasing, and the transformation towards "eco-friendly ships" is irreversible. It is recommended to continue focusing on the "Juglar cycle + new energy" driving the large shipbuilding cycle. Amid tight supply, shipyards possess strong bargaining power, and new ship prices and new ship orders are expected to remain highly prosperous.
On September 18, 2024, china cssc and china shipbuilding industry announced a plan for absorption and merger restructuring, intending to promote the merger by exchanging 1 share of china shipbuilding industry for 0.1335 shares of china cssc. The merger of the north and south shipbuilding entities has commenced, and further asset restructuring progress is expected to accelerate, which will be long-term bullish for optimizing industry competition and enhancing the profit capacity of shipping companies.
Regarding the symbols:
It is recommended to continually pay attention to the large shipbuilding cycle, with recommendations for leading shipbuilders expected to benefit from the triple dividends of volume, price, and cost: china cssc (600150.SH), cssc offshore & marine engineering (600685.SH), and china shipbuilding industry (601989.SH); and for the leader in ship power systems expected to benefit from the industry cycle: china shipbuilding industry group power (600482.SH).
Risk warning: Risks of macroeconomic performance not meeting expectations; fluctuations in raw material prices and exchange rates; the progress of eco-friendly concept policies is not as expected.
