Global shipbuilding leader, benefit from the industry cycle recovery

1. China Shipbuilding: CSSC core military and civilian products main listed company, leading the development of advanced and sophisticated technology in the shipbuilding industry

1.1 Core military and civilian products main listed companies, leading the development of high-tech shipbuilding industry

China Shipbuilding is the core military and civilian products listed company platform of CSSC Group, and the leading enterprise of China's shipbuilding industry. China Shipbuilding is a large ship manufacturer with international advanced level, and continues to lead the development of high-end and sophisticated technology in the shipbuilding industry. The company's main business segments include shipbuilding business, ship repair business, power business, Marine engineering and mechanical and electrical equipment. As a partner of the world shipping industry, the company adheres to the high-quality development strategy and promotes the layout of the four major industries of the Group: "Marine defense equipment industry, Marine Marine equipment industry, Marine science and technology innovation and application industry, and Marine Marine engineering service industry". With strong scientific research and innovation strength, advanced management level and exquisite manufacturing skills, the company has made great efforts to improve the quality of its products. We continue to launch a series of large green ship types and ship machinery new products, and continue to lead the development of high-end technology in the Marine industry.

China Shipbuilding integrates the large ship repair, power and Marine engineering businesses of China State Shipbuilding Group, and has a complete shipbuilding industry chain. China Shipbuilding has a complete ship industry chain, including large shipyards Jiangnan Shipbuilding, Waigaoqiao Shipbuilding, Guangzhou Shipbuilding International, CSSC Power, CSSC Chengxi and so on. Jiangnan Shipbuilding is a large-scale industrial enterprise with the longest history in China. Its civilian products are mainly super large container ships, liquefied gas vessels and special vessels, and its military products cover all surface and underwater vessels. Waigaoqiao Shipbuilding is a pure civilian shipbuilding enterprise, mainly based on bulk carriers, cruise ships and container ships. CSSC Chengxi is the leader of the domestic ship repair industry, known as the five-star repair shipyard, the products are mainly bulk carriers, wood chips ships, in addition to wind tower business; According to the international ship network, CSSC Power Group is the domestic first-class power enterprise, as of 2020, CSSC power low-speed machine international market share of 20%, ranking second in the world; By 2022, the domestic market share is more than 70%; Guangzhou Shipbuilding International is the largest and strongest production and support base for military auxiliary ships in South China. The main civilian ships are container ships and refined oil tankers. In terms of military products, the hospital ship "Peace Ark" and supply ships have been manufactured.

The company's ownership structure is clear, and the actual holding is the State-owned Assets Supervision and Administration Commission of the State Council. As of the end of 2021, China State Shipbuilding Corporation directly holds 44.47% of the shares of China State Shipbuilding, and indirectly holds 5.95% through CSSC Investment and CSSC Defense, collectively holding 50.42% of the shares of the company, becoming a direct controlling owner. In October 2021, the State-owned Assets Supervision and Administration Commission of the State Council agreed to the joint reorganization of CSSC and CSIC, and the new China State Shipbuilding Group Co., LTD., and CSSC and CSIC as a whole were incorporated into China State Shipbuilding Group. After the free transfer of equity, China State Shipbuilding Group obtained 100% of the shares of CSSC, thereby indirectly controlling 50.42% of the shares of the company, the company's direct controlling shareholder is still CSSC, the actual control is the State-owned Assets Supervision and Administration Commission of the State Council.

1.2. Historical review: Listed for more than 20 years, resonates with the development cycle of China's shipbuilding industry

The company has been listed for more than 20 years, resonating with the development cycle of China's shipbuilding industry. It can be divided into four stages: beginning, rising, low valley and bottom building. After more than 20 years of development, the company has gone through the peak and trough period of the shipbuilding industry cycle from Hudong Heavy Machinery to China Ships mainly engaged in civilian products, and then to the core military and civilian products listing platform of CSSC. According to the company's revenue performance, business proportion and major historical events, combined with the overall cycle of the shipbuilding industry, the company's history is divided into four stages:

(1) Beginning (1998-2006) : Formerly known as Hudong Heavy Machinery, the company is a diesel engine manufacturing company with outstanding strength under CSSC. From 1998 to 2006, the annual compound growth rate of the company's operating income was 15.5%, and the annual compound growth rate of performance was 23.5%.

(2) Rise (2006-2012) : The company became a listing platform for the core civilian products of China Shipbuilding Group. From 2006 to 2012, the compound annual growth rate of operating income was 48.4%. In 2008, the company's net profit reached the highest level in history of 4.16 billion yuan, +42.6% year-on-year.

(3) The trough (2012-2017) : At the bottom of the shipbuilding industry cycle, the transfer of shares of Changxing Shipbuilding, Guangshu Wenchong and other companies to streamline business. From 2012 to 2017, the compound annual growth rate of the company's operating income was -7.2%.

(4) Building the bottom (2017-2021) : debt-equity conversion into military and civilian assets, and the merger of North and South ships to create an "aircraft carrier" in the shipbuilding industry. From 2017 to 2021, the compound annual growth rate of operating revenue is 37.5%.

1.2.1. Beginning (1998-2006) : Formerly Hudong Heavy Machinery, it is a diesel engine manufacturing company with outstanding strength under CSSC

The company was formerly established in 1998 Hudong heavy machinery, main Marine diesel engine. CSSC was formerly known as Hudong Heavy Machinery Co., LTD. Hudong Heavy Machinery Co., Ltd. was established in 1998, and was jointly initiated by Hudong Shipyard (now Hudong Zhonghua Shipbuilding Group Co., LTD.) and Shanghai Shipyard (now Shanghai Shipyard Shipbuilding Co., LTD.), and was listed on May 20, 1998. The main product of Hudong Heavy Machinery is Marine diesel engine, Marine diesel engine is the main power equipment of civil ships, small and medium-sized ships and conventional submarines. The low speed diesel engine can drive the propeller directly, and the low speed makes the propeller have high propulsion efficiency. Hudong Heavy Machinery diesel engine in 1999 market share of more than 50%, sales and income ranked first in the domestic industry, the main customers are the company's two major shareholders Hudong Shipyard and Shanghai shipyard.

After listing, the investment in research and development and expansion of production was increased, and the diesel engine business developed rapidly, and the market share reached 65%. In 2000, Hudong Heavy Machinery medium and low speed diesel engine domestic market share reached 65%, completed 62 units / 957,000 horsepower in 2004, the output ranked fifth in the world, in 2005 diesel engine annual output exceeded 1 million horsepower, net profit exceeded 100 million yuan. With the continuous development of the international shipping industry and shipbuilding industry, the company sold 79 diesel engines in 2006, with a total of 1.08 million horsepower, and the main business income exceeded 2.2 billion. The company continues to increase investment in research and development, and promote the research and development of 70 million watt large-diameter diesel engines and LNG dual-fuel diesel engines. While developing the main business, the company also actively carries out investment expansion, share reform and other work, which has strategic significance for the future development of the company.

In 2005, Hudong Heavy Machinery and CSSC, Mitsui Shipbuilding joint venture to build a diesel engine subsidiary, the introduction of advanced diesel engine manufacturing technology. Due to the rapid development of shipbuilding industry, it is urgent to improve the manufacturing capacity of Marine diesel engine simultaneously. In order to expand production capacity, maintain the market share of diesel engines, and solve the problem of limited production area, in July 2005, China State Shipbuilding Corporation (CSSC) and Japan's Mitsui Shipbuilding Co., LTD. (Mitsui Shipbuilding) decided to invest in high-power Marine diesel engine projects. The joint venture period of 30 years, the registered capital of 480 million yuan, CSSC Group contributed 15%, Hudong Heavy machinery contributed 51%, Mitsui Shipbuilding contributed 34%, invested in the establishment of a subsidiary Shanghai Mitsui Shipbuilding Diesel Engine Co., LTD. Mitsui Shipbuilding Co., Ltd. was founded in 1917 and is one of the largest shipbuilding companies in Japan. Mitsui Shipbuilding has mature and advanced diesel engine manufacturing technology. In 1976, the cumulative production of B&W diesel internal combustion engine products reached 10 million horsepower. In 1992, the most advanced diesel internal combustion engine assembly plant was built. The cooperation between the company and Mitsui Shipbuilding has not only promoted the economic and technological exchanges between China and Japan, but also accelerated the introduction of advanced diesel engine manufacturing technology and company management methods by Hudong Heavy.

In 2005, Hudong Heavy Machinery carried out the reform of non-tradable shares, which accelerated the marketization process. At the beginning of the establishment of China's stock market, in order to ensure that the state has control over listed enterprises, and to prevent the newly established stock market from being unable to bear the pressure brought by the full circulation of the market, the system of split shares was established. But the split share structure has also created the problem of different rights and interests of the same share, which has seriously affected the healthy development of China's stock market. With the development of economy and the capital demand of enterprises, it is necessary to eliminate the institutional differences through the reform of non-tradable shares. Shareholders of non-tradable shares must pay a certain consideration to shareholders of tradable shares in order to obtain the circulation right. In order to increase the interests of shareholders of tradable shares, Hudong Heavy Machinery finalized the final plan in 2005 and increased the consideration. The non-tradable shareholders of the Company paid 3.2 consideration shares for every 10 shares of the tradable shareholders, and the total consideration shares paid were 24.64 million shares. Through this share reform, Hudong Heavy Machinery has effectively connected the interests of investors with the interests of the company, mobilized the enthusiasm of all shareholders to safeguard the interests of the company, and further improved the corporate governance structure. In addition, the share reform has also laid the foundation for Hudong Heavy Machinery to optimize resource allocation in the future, introduce investors, and promote industrial restructuring.

In 2006, the controlling shares of Hudong Heavy Machinery were transferred to CSSC free of charge, laying the foundation for building the overall development system of modern ship industry chain. The essence of the free transfer of state-owned shares is the transfer of corporate control and management reorganization, and the free transfer of equity is generally led by the government and the competent departments of the industry. The transferee of state-owned shares must be a wholly state-owned company, and the change of equity has no loss to the holders of listed companies. In 2006, The State Council issued important documents such as the "Medium and long-term Development Plan for China's shipbuilding Industry", which clearly requires the annual output of diesel engines to reach 6 million horsepower in 2010 and 8 million horsepower in 2015. Hudong Heavy Machinery is the only Marine low-speed diesel engine manufacturing enterprise in CSSC, with a market share of more than 60%, which occupies an important position in the development strategy of CSSC and the national shipbuilding supporting industry. CSSC requires Hudong Heavy Machinery to produce 4.8 million horsepower of Marine diesel engines in 2015 and continue to maintain a 60% market share. In order to achieve this goal, we must not only get the full support of CSSC, but also make full use of the overall advantages of CSSC. In November 2006, the "state-owned shares" of Hudong Heavy Machinery held by Hudong Zhonghua Shipbuilding, the controlling shareholder of the company, and Shangcheng Xi, the second largest shareholder, were transferred to the actual controller China State Shipbuilding Corporation free of charge. After the completion of the equity transfer, China State Shipbuilding Corporation directly holds 53.27% of the shares of Hudong Heavy Machinery and becomes the controlling shareholder of the company. Through this equity transfer, CSSC can integrate various internal business structures more efficiently, further optimize ship supporting resources, and place HUDong Heavy Machinery more directly in the overall development system of CSSC to build a modern ship industry chain, and enhance Hudong Heavy Machinery's status in the entire CSSC Group.

1.2.2. Rising (2006-2012) : injected private ship assets and became a listing platform for the core civilian products of China Shipbuilding Industry Group

The cycle of the shipping industry continues to recover, and China's shipping enterprises have a good momentum of development. According to Clarkson data statistics, the global shipbuilding new orders reached a record high of 260 million DWT in 2007, of which the bulk carrier demand is the most strong, new orders reached a record high of 160 million DWT. Global hand-held orders reached an all-time high of 650 million DWT in October 2008. Ship prices also reached an all-time high in 2008, with the oil tanker price index reaching a peak of 255 and the bulk carrier price index reaching a peak of 240. In 2006, China's new orders exceeded South Korea for the first time, ranking first in the world, and gradually formed a three-way partnership with South Korea and Japan.

In 2007, after the injection of the Group's private ship assets, it was renamed China Ship and became the listing platform for the core civilian products of CSSC Group. In 2007, the company seized the historical opportunity of the great development of shipbuilding industry and the "double bull market" in the capital market, implemented asset restructuring through private equity offering, and acquired core civilian assets such as Waigaoqiao Shipbuilding, CSSC Chengxi and Yuanhang Wenchong under CSSC Group, and changed its name to "China State Shipbuilding Industry Corporation Limited". It has become a listing platform for the core civilian products of China State Shipbuilding Corporation, with a complete industrial chain of repair, manufacture and distribution. After the completion of the acquisition, the company's revenue and performance increased significantly, from 2007 to 2008, revenue and net profit continued to rise, in 2008, revenue reached 27.656 billion yuan, +54.71% year-on-year, net profit of 4.16 billion yuan hit a record high, the same ratio of +42.56%.

Waigaoqiao Shipbuilding and Chengxi Shipbuilding acquired by the company have strong strength in the field of ship building and repair. Waigaoqiao Shipbuilding is a leading enterprise in China's civil shipbuilding industry with strong technical force. In 2007, Waigaoqiao Shipbuilding has become the eighth largest shipbuilding enterprise in the world. The product line includes: large bulk carriers, container ships and large oil tankers. In 2006, the shipbuilding capacity was 3.2 million tons, and the shipbuilding tonnage accounted for more than 50% of CSSC, accounting for about 22% of the country. CSSC Chengxi is known as a "five-star" repair shipyard in the industry, especially in the repair and modification business of high-tech and high value-added special ships with a large market share. CSSC Chengxi and Yuanhang Wenchong repaired and modified 300 ships in 2006, with a dock capacity of 400,000 tons. After the completion of the Longxue Island ship repair base and Chengxi technological transformation, the dock capacity expanded to 1.07 million tons, ranking first in the country.

In addition, the company has vigorously expanded its Marine engineering and non-ship business on the basis of continuing to do the original business of sharp and fine shipbuilding. 2007 Waigao Bridge completed a 300,000-ton FPSO with great influence in the international Marine engineering community; In 2009, the total shipbuilding volume of Waigaoqiao exceeded 6 million deadweight tons, ranking among the world's top three shipbuilding companies for the first time. In 2010, CSSC Chengxi successfully repaired the FPSO ship "Blatt", making a breakthrough in the offshore repair market. In 2011, Waigaoqiao Shipbuilding delivered the "Offshore Oil 981" 3,000-meter deepwater drilling platform; CSSC Chengxi concentrated its superior strength to overcome the modification of 38,000 tons of highly automated self-unloading ships integrating shipbuilding technology and technology and key projects such as FSO "Tapsos", completed 76,900 tons of non-ship business wind tower projects, and shipped 399 sets of wind towers / 54,300 tons, all of which set a new record in history. In 2012, Waigaoqiao Shipbuilding successfully started the construction of three JU2000E jack-up drilling platforms, and Chengxi undertook the project of repairing and refitting the first LNG ship in China and large ore transfer ship

1.2.3. Trough (2012-2017) : The ship & offshore industry business entered the downward cycle successively, transferred assets and actively responded to the trough period