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

In January 2007, Hudong Heavy Machinery Co., Ltd. issued 400 million A-shares to A specific target group, including large state-owned enterprises such as controlling shareholders CSSC Group, CITIC Group, Baosteel Group, CSSC Finance, Shanghai Electric, China Life and Social Security Fund. To acquire the 66.66% equity interest in Waigaoqiao held by CSSC, 100% equity interest in Chengxi, 54% equity interest in Yuanhang Wenchong, and the remaining 33.34% equity interest in Waigaoqiao held by Baosteel Group and Shanghai Electric Company, The company from a single Marine engine leading enterprise to a large civil ship manufacturing, high-power low-speed diesel engine manufacturing, ship repair as one of the three major businesses, with a complete industrial chain of large-scale ship manufacturing listed companies, initially formed the core of CSSC civil products main business overall listing platform. In July of the same year, CSSC increased its holding by 260 million shares due to the subscription of Hudong Heavy Machinery's non-public offering shares, and accumulated 61.06% of Hudong Heavy Machinery's shares. In the same month, after the integration of CSSC core civilian quality assets, Hudong Heavy Machinery officially changed its name to "China State Shipbuilding Industry Co., LTD." In August of the same year, the company's securities abbreviation was changed from "Hudong Heavy Machinery" to "China Shipbuilding", and the securities code remained unchanged. In December of the same year, based on the original diesel engine business and related assets, the company established a new "Hudong Heavy Machinery Co., LTD." as a wholly-owned subsidiary of the company, to continue to play its original advantages in the domestic and foreign diesel engine industry.

In 2008, the company's wholly-owned subsidiary Waigaoqiao Shipbuilding acquired 65% of Changxing Shipbuilding from CSSC and became the controlling shareholder. After the completion of this transaction, the combined capacity of Waigaoqiao and Changxing Shipbuilding will reach about 7 million deadweight tons. Waigaoqiao will become the world's second largest shipbuilding company after Hyundai Heavy Industries of South Korea and the largest domestic shipbuilding company. In August of the same year, China Shipbuilding planned to issue convertible bonds of no more than 7.4 billion yuan to invest in eight projects, including Waigaoqiao Ocean Engineering and high-tech ship engineering supporting projects.

Next, we look at the historical recovery of China Shipbuilding's share price and PE (TTM). From 2002 to 2008, we were generally divided into two stages: First, from 2002 to 2006, Hudong Heavy Machinery's stock price performance was quite stable, but profits have continued to improve, so the overall PE showed a downward trend; Secondly, from 2006 to 2008, under the influence of the leading effect of the high prosperity of the shipping market + backdoor listing + the great bull market of the stock market in 2008, China Shipbuilding ushered in the golden period of stock price growth, the stock price increased from 3.76 yuan in early January 2006 to the highest 132.24 yuan in November 2007. An increase of 35 times, far outpacing the broader market.

The lesson of this review is as follows: The upward cycle of ships, whether it is driven by new demand or renewal of stock, is generally driven by renewal in the early stage. For example, the main driver from 2002 to 2005 is the renewal of oil tankers. In this process, the market reaction is relatively flat, at this time the EPS of shipping companies continues to increase, and PE continues to decline. Until it reaches a point where it's undervalued. However, this point often represents an inflection point, as the capacity shortage reflected in the long-term replacement of old and new capacity can become particularly severe when the demand structure changes, and ship and freight rates explode, which is a fundamental departure from low valuations. Therefore, the end of the ship's upward cycle may show high investment sentiment due to the long-term suppression of low valuations and rapidly improving fundamentals, ushering in Davis double click.

Looking forward to the new round of ship cycle 22 years later, we need to note that the current industry environment and its own characteristics are very different from the previous cycle. In the past 10 years, the concentration of the shipping industry has increased rapidly, and the expansion cycle of ship capacity is relatively slow, so the leaders who retain capacity and survive in the previous low-price competition are expected to be the first to benefit. In addition, China's ship repair load ratio has increased in recent years, indicating that the manufacturing capacity has continued to optimize, and the ballast water tank and desulfurization tower in the core ship distribution market are still high net worth businesses, and manufacturers that can make progress in these aspects will gain greater growth momentum. Then, considering that the large cycle of the ship also means the large cycle of changing the ship, the traditional power ship faces the challenge of alternative fuel ships. Finally, we expect steady growth in defense spending in the future, which will steadily benefit shipbuilding companies related to military and civilian products.