The downstream private shipyards are expected to gradually restore capacity, which will drive continuous expansion of engine demand. Unlike ships, the technology iteration driven by the Eco-friendly Concept accelerates the transformation of engine technology, resulting in a greater increase in value.
According to the Zhitong Finance APP, GF SEC has released a Research Report stating that the engine is a core element affecting the overall shipbuilding cost, with Orders and stock prices lagging behind the ship sector. Ship engines are the core equipment of ships, accounting for about 20% of the ship's total cost. Orders lag behind ships, while deliveries are ahead, creating a certain time lag between the rhythms of orders, stock prices, and the ship sector. The engine plays a key role for shipowners in controlling operating costs like fuel consumption and in low-carbon transformation. Currently, the supply-demand relationship for low-speed engines continues to improve, although stock price performance still lags. In the long term, a new round of technological and business model changes will bring greater potential market space and flexibility.
GF Securities' main points are as follows:
Demand: Economic prosperity + Eco-friendly Concept drives the overall central elastic force to surpass historical peaks, opening up a new space for the aftermarket worth hundreds of billions.
The demand for marine engines is closely related to new ship orders, driven by three major factors: economic conditions, aging updates, and Eco-friendly updates. The gradual recovery of capacity in downstream private shipyards is expected to drive continuous expansion of engine demand. Unlike ships, the Eco-friendly Concept driven technology iteration accelerates the transformation of engine technology, resulting in a greater increase in value.
The institution estimates that the global demand for engines in 2024-2025 will be approximately 22.5 million horsepower annually, with the market space averaging about 65 billion yuan per year from 2025 to 2030; it is expected to reach 150 billion yuan in the long term, potentially doubling the space. In addition, the aftermarket business for low-speed engines has broad potential, high profit margins, and excellent business models. The institution estimates that the annual demand space for 2024-2030 will be about 100-120 billion yuan, which is expected to bring new growth opportunities for leading companies.
Supply: Weak recovery + strong structure - the supply-demand situation is confirmed to be in shortage, accelerating the Eco-friendly transformation and large-scale orientation concentrated towards the leading companies.
The supply pattern of engines is concentrated, entering a state of supply not meeting demand since the upward cycle began, with the pace and extent of supply recovery being weaker than that of Ships.
The expansion of engine production is mainly restricted by five major conditions: (1) State-owned enterprises hold over 70% market share domestically, with the share primarily controlled by state-owned enterprises; (2) The transition to dual-fuel has led to effective capacity loss; (3) Strict patent licensing limits new players from entering; (4) The capacity of the supporting supply chain is restricted; (5) The capital density of engine production capacity is higher than that of Ships. Chinese manufacturers have about 40% of the global share, and their market share has significantly increased in recent years; the eco-friendly transformation and trend towards large-scale production further enhance competitive barriers, benefiting leading companies' market share concentration.
Profitability: Price and volume have a defined upward trend, with the long-term profit center moving upwards.
The unit price of China Shipbuilding's low-speed engines has risen by 67% since the bottom, surpassing the high point of the last cycle. With a lower cost advantage for labor and raw materials, the operating margin is at a mid-to-high level compared to Japanese and Korean manufacturers.
The engine pattern and cost structure are more favorable, with the medium- to long-term profit margin center expected to exceed that of Ships: on one hand, the concentration of engines is higher than that of Ships, with bargaining power firmly held by leading manufacturers; on the other hand, the price increase of core component crankshafts is relatively limited, and the proportion of labor costs is lower, making it less affected by rising labor costs.
Investment recommendation:
The demand center for ship engines is steadily moving up, the eco-friendly technology transition brings value increment, and the supply pattern continues to accelerate concentration and optimization, currently standing at a turning point in cycles, technology, and after-market model changes. China Shipbuilding Industry Group Power, as the leading manufacturer of marine low-speed engines, benefits from production line technological reform expansion + technological advancements + after-market layout, with the profit center expected to continue expanding. In the ship engine segment, China Shipbuilding Industry Group Power (600482.SH) is recommended, in the overall assembly segment, China CSSC (600150.SH), Cssc Offshore & Marine Engineering (00317,600685.SH) is recommended, and attention is suggested for China Shipbuilding Industry (601989.SH), Guangdong Songfa Ceramics (603268.SH), and Xingmin Intelligent Transportation Systems (002355.SZ).
Risk warning: Downward risk of the global macroeconomic environment, risks from cost and exchange rate fluctuations, and risks from fuel price fluctuations.
