Guotou Securities: Profitability begins to show + Mergers and acquisitions in the shipbuilding industry continue to be strong in the third quarter.

Guotou Securities released a research report stating that due to the downturn in downstream freight rates and the progress of the merger between northern and southern shipbuilders, the price range of China CSSC/China Shipbuilding Industry/Cssc Offshore & Marine Engineering(A)/China Shipbuilding Industry Group Power in 2024Q3 increased by 3.14%/11.76%/-3.05%/24.36%, excluding China Shipbuilding Industry Group Power, underperforming the Shanghai and Shenzhen 300. Looking ahead, as of the end of 2024H1, China CSSC/Cssc Offshore & Marine Engineering/China Shipbuilding Industry/Yangtze River respectively held shipbuilding orders worth 199.6 billion yuan (civil ships)/59.7 billion yuan/108.6 billion yuan/20.15 billion US dollars. With ample orders in hand, it is recommended to continue to focus on the release of shipbuilding profits after a simultaneous increase in quantity and price and a decrease in costs, as well as the progress of China CSSC's stock absorption merger with China Shipbuilding Industry. Guotou Securities' main points are as follows: Overview of the 2024Q3 market and operations: Market Performance: In 2024Q3, the price ranges of China CSSC/China Shipbuilding Industry/Cssc Offshore & Marine Engineering(A)/China Shipbuilding Industry Group Power were 3.14%/11.76%/-3.05%/24.36%, influenced by the downturn in freight rates and the progress of the merger, with China Shipbuilding Industry Group Power underperforming the Shanghai and Shenzhen 300. As of the end of 2024Q3, the market value of actively managed equity holdings of China CSSC/China Shipbuilding Industry Group Power/Cssc Offshore & Marine Engineering A/China Shipbuilding Industry was 9.3/3.31/1.09/2.31 billion yuan respectively, and the number of actively managed equity funds held was 320/116/37/83. China Shipbuilding Industry Group Power received significant increase in holdings. Performance of shipbuilding companies: Benefiting from a simultaneous increase in quantity and price and improving quality and efficiency, although the detailed breakdown of civilian business growth for each company is not available due to the consolidation of military and civilian operations in financial statements, looking at the gross profit margin, China CSSC/China Shipbuilding Industry/Cssc Offshore & Marine Engineering/China Shipbuilding Industry Group Power had gross profit margins of 11.6%/12.5%/11.5%/14.9% in 2024Q3, up by +2.7/0.8/4.9/2.0pcts. In terms of profit, the non-deductible net profits for the quarter were 7.7/3.3/0.3/1.8 billion yuan, with year-on-year growth rates of 349%/189%/247%/72%. It can be seen that profitability has gradually entered an upward trend. Industry tracking and outlook: New shipbuilding costs: According to Wind statistics, in October 2024, China's new shipbuilding price index closed at 1130 points, up 6.0% since the beginning of the year. In 2024Q3, bulk carriers and container ships saw slight increases to varying degrees. New ship orders: According to Wind statistics, from January to September 2024, global new ship orders totaled 12.866 million deadweight tons, a year-on-year increase of 61%. Among them, new orders for oil tankers were 33.23 million deadweight tons, an increase of 71% year-on-year; new orders for container ships were 2.98 million TEU, an increase of 98%, indicating strong demand. Shipping market: Starting in July 2024, the impact of the Red Sea crisis began to weaken, coupled with relatively weak exports, container shipping rates began to decline. The Shanghai export container freight index fell from 3734 points on July 5, 2024, to 2062 points on October 18, 2024, a decrease of 44.77%. It is recommended to continue monitoring freight rate trends and the potential demand for container ship dismantling. Investment recommendations: The average age of existing shipping capacity is increasing, and the irreversible trend of "green ships" transformation. It is recommended to continue to focus on the shipbuilding industry driven by the "Zhu Ge-La cycle + new energy transformation." With current tight supply, shipyards have strong bargaining power, and new ship prices and orders are expected to remain in a high prosperity. On September 18, 2024, China CSSC and China Shipbuilding Industry released a merger and reorganization plan, proposing to push forward the merger and reorganization of the two shipbuilders by exchanging 0.1335 shares of China CSSC for each share of China Shipbuilding Industry. The merger of northern and southern shipbuilders has begun, and the progress of asset restructuring is expected to accelerate, which will long-term benefit the optimization of industry competition and increase the profitability of shipbuilding enterprises. Target recommendations: It is recommended to continue to focus on the shipbuilding industry driven by the large cycle, and recommend the shipbuilding leaders that are expected to benefit from the three major dividends of quantity, price, and cost: China CSSC (600150.SH), Cssc Offshore & Marine Engineering (600685.SH), China Shipbuilding Industry (601989.SH).Leader in ship power systems in the field of large-cycle ship: China Shipbuilding Industry Group Power (600482.SH).Risk Warning: Risks of macroeconomic underperformance; fluctuations in raw material prices and exchange rates; unexpected delays in the advancement of environmental protection policies.