The last round of ship cycle from the rise to the decline, the enlightenment for us

First, the enlightenment of the last ship cycle from the rise to the decline

The U.S. subprime crisis emerged in early 2006 and swept through the United States in August 2007, and the ship market was affected about a year apart. In fact, when the market downward turning point is approaching, the market did not significantly revise down expectations to reach a rational state, but gradually revised down expectations in the process of witnessing the ship market step by step toward the Xiao, and the final revision amplitude is even lower than the objective state, reaching the degree of excessive pessimism. We can look at the correction of market expectations after the 1980s oil crisis, from relatively optimistic expectations in 1978 to overly pessimistic expectations in 1984, and the true trend of the market is somewhere in between. The same is true for the ship market after 2008, although the ship industry has really gone to the trough, but the market's expectations have moved from optimism to excessive pessimism. Considering that the shipbuilding industry has gone through a decade-long period of overcapacity, the CCI (China Shipbuilding Industry Association released China Shipbuilding capacity utilization monitoring index) in 2021 has finally returned to the position of the boom and contraction line, and another upward cycle of the shipbuilding industry has arrived, and the market is expected to remain relatively pessimistic under its inertia. This shows that there is an expectation gap in the current shipping industry.

From the perspective of ship production capacity, the number of shipyards in operation in the world in 2007 was 678, and by 2021 it has fallen to 274, and the actual capacity of shipping companies has contracted significantly, especially the number of active shipyards in China has declined most obviously. The decline in the number of shipyards also means the consolidation of the domestic shipbuilding industry, the CR5 of China's shipbuilding industry has increased from about 70% in 2010 to more than 80% today. The two leading domestic shipbuilding companies, China Shipbuilding and China Heavy Industry, have also achieved substantial restructuring, and their common holding group company, China Shipbuilding Group, has gradually integrated the business within the two shipbuilding groups.

Finally, we need to understand that the rise of China's shipbuilding industry in the early 21st century, it is the last round of ship upward cycle for the domestic shipbuilding industry to bring growth opportunities. In 2000, China's shipbuilding completion accounted for less than 6% of the world, by 2010, China's shipbuilding completion accounted for 42% of the world. The reason why China's shipbuilding industry can rise rapidly is attributed to China's very low labor costs, huge economic potential and rapid development of import and export trade. Limited by environmental control and land approval, it was difficult for Europe, Japan and South Korea to expand dock capacity in the last cycle, and they could only improve dock utilization. So that by 2006, a large number of orders from Japanese shipping companies spilled over to China, and by 2008, the average delivery time of Japanese shipping companies had been dragged to 2012, while the average delivery time of China and South Korea was relatively short. More attractive. On the other hand, China's per capita shipbuilding completions rose from 15.4 DWT in 2001 to 62.6 DWT in 2008, significantly improving human efficiency and reducing average shipbuilding costs, which also attracted global shipowners to order ships in China. Compared with this round of ship upward cycle that we have come, the global ship market from 2002 to 2008 has the attributes of shifting the center of gravity of shipbuilding + new demand, and at the same time, the market is too enthusiastic at the peak position. Considering that the current global shipping enterprises are relatively cautious about capacity expansion, and no country has the basic conditions to undertake East Asian shipbuilding capacity, so the early part of this cycle may be similar to the oil tanker update around 2003, will usher in a wave of small peak form of replacement demand, but in the latter part of the cycle, capacity bottlenecks will gradually become prominent. In the context of the lack of capacity expansion channels, once there are sudden factors such as changes in the trade pattern in 2006 and 2007, the hub plug port, it will likely lead to a retaliatory rise in freight and ship prices again, and the leading enterprises will no longer face the competitive impact of blind expansion of production capacity, and will be expected to enjoy a higher ship price premium. Revenue expansion may be slower than in the previous cycle, but the margin improvement will be more dramatic.

Second, the leading company's stock price in the last cycle, historical review and future outlook

In this chapter, we combine the historical development of the leading company China Shipbuilding from 1998 to 2008 to make a stock price recovery. China Shipbuilding, formerly known as Hudong Heavy Machinery, has long undertaken most of the ship machinery supporting tasks of the original Hudong Shipyard and the original Shanghai shipyard. In 1999, the year after the establishment of listing, Hudong Heavy Machinery is already the largest domestic production scale, the strongest technical development capacity of Marine medium and low speed diesel engine production base, with an annual capacity of 410,000 kilowatts, and the domestic market share of more than 60%. In November 2002, Hudong Heavy Machinery successfully developed the world's first 6-cylinder K80MC-C diesel engine, so far, Hudong Heavy Machinery Marine diesel engine annual capacity has reached 1 million horsepower, accounting for 70% of the domestic peer manufacturing total. In May 2004, Shanghai Shipyard, the shareholder of Hudong Heavy Machinery Company, was restructured into a wholly state-owned company, and its name was changed to Shangshang Chengxi Shipbuilding Co., LTD. All the shares of Hudong Heavy Machinery Company formerly held by Shanghai Shipyard were transferred to Shangshang Chengxi Shipbuilding Co., LTD. In November 2005, with the approval of SASAC, Hudong Heavy Machinery implemented the reform of split shares, and the net profit of Hudong Heavy Machinery exceeded 100 million yuan for the first time that year. 2006 is Hudong heavy machinery development road important node. In that year, the company expanded the production capacity of the Sino-Japanese joint venture CSSC Mitsui, and in the same month, Hudong Heavy Machinery and Hudong Zhonghua (including its subsidiaries) jointly put into operation the phase I project of Shanghai Hulin Metal Processing Co., LTD., indicating the continuous expansion of the company's production capacity. In November of that year, a total of 139 million shares of state-owned legal persons held by Hudong Zhonghua, the controlling shareholder, and Chengxi, the second largest shareholder, were transferred to China State Shipbuilding Corporation, the actual controller of the company, accounting for 53.27% of the total share capital of the company, and became the controlling shareholders of the company, and Hudong Heavy Machinery began to be directly placed under the system of CSSC.