In the first quarter, profit increased more than 10 times. Will Cssc Offshore & Marine Engineering (00317) see a "spring" in valuation in 2025?

Benefiting from the upturn in the shipbuilding cycle, following the release of impressive annual performance, Cssc Offshore & Marine Engineering (00317) saw its quarterly profit surpass tenfold in 2025. It is understood that Cssc Offshore & Marine Engineering recently released its Q1 guidance for 2025, expecting to achieve a net profit attributable to the parent company of 170-200 million yuan, a year-on-year increase of 10-12 times. In addition, the company announced progress in its Q1 orders, with new orders totaling 12.502 billion yuan, including contracts for the construction of 9200TEU container ships, 1900TEU container ships, special vessels, and 20000 cubic meter LNG bunkering vessels, completing 71.64% of the annual plan. In the 2024 financial report, the company's operating income was 19.402 billion yuan, an increase of 20.17% year-on-year, with a net profit attributable to shareholders of 377 million yuan, a 6.85 times increase. The company plans to distribute a cash dividend of 0.70 yuan per 10 shares, with a dividend ratio of 30.72%. In fact, the shipbuilding industry continues to thrive. According to Clarkson data, the global new shipbuilding market saw new ship orders totaling 178.035 million gross tons and 70.366 million compensated gross tons, representing a year-on-year increase of 39.3% and 39.6% respectively. Additionally, due to international conflicts, prices are also rising. For example, in December 2024, the Clarkson shipbuilding price index reached 189 points, a 6.5% increase year-on-year, reaching a new high since October 2008. Cssc Offshore & Marine Engineering is one of the leading shipbuilding companies in China, with obvious competitive advantages. It is benefiting from the high growth in the industry and its profits are entering an explosive period. Shipbuilding business thrives, driving high performance growth It is understood that Cssc Offshore & Marine Engineering's operating business includes shipbuilding products, marine products, steel structure engineering, ship repair and modification, and electromechanical products. In 2024, its two core products, shipbuilding and marine products, both maintained high growth levels, with revenues of 16.727 billion yuan and 698 million yuan respectively, representing year-on-year growth of 26.4% and 64.97%. Together, these revenues contributed 90.91% of the total, an increase of 5.24 percentage points year-on-year. However, revenues for other product categories experienced a decline, with steel structure and electromechanical products decreasing by 38.43% and 20.43% respectively, but only contributing 5.13% to the total revenue. Shipbuilding products accounted for the majority of revenue, contributing 86.2% in 2024. Bulk carriers, container ships, and other special vessels all maintained growth trends, with bulk carriers showing the highest increase, reaching 123.28%. Additionally, revenue from container ships also performed well, increasing by 20.98%. As of the end of 2024, the company had total order contracts valued at approximately 61.6 billion yuan, with shipbuilding order contracts accounting for 58.7 billion yuan, or 95.3%, including 130 ship products and 2 marine equipment. Data source: Company financial reports It is worth noting that as a large backbone shipbuilding enterprise under China Shipbuilding Corporation and a core military industrial production enterprise, the company's business is globalized, covering Asia, Europe, Oceania, North America, South America, and Oceania, with Asia contributing 88.2%, of which China accounts for over 66%. The recent trade war initiated by the United States and the imposition of port fees on ships flying the Chinese flag have had little impact on the company's revenue in the North American market, accounting for only 0.2%, which is negligible. The global shipbuilding industry has entered a boom cycle, with high double-digit growth in global new ship orders and tonnage, as well as continuously breaking records in new shipbuilding price indices. The "rise in quantity and price" confirms the strong demand in the industry. The trade war has had some impact on the shipbuilding industry, but regional cooperation will become closer, offering both opportunities and challenges to the industry. Cssc Offshore & Marine Engineering, with its industry advantages, integrates four major marine equipment categories including marine defense equipment, marine transportation equipment, marine development equipment, and marine technology application equipment, and its main products have a high market share globally. In the development trend of the global shipbuilding market with "rising demand and tight supply," Cssc Offshore & Marine Engineering has maintained strong order receiving demand with multiple advantages, achieving an operating intake of 25 billion yuan in 2024, completing 165.56% of the annual plan. In Q1 2025, new orders completed 71.64% of the annual plan, with an annualized completion rate of 286.6%. Based on the quarterly development trend, it is expected that the company will continue to maintain high performance in the first half of 2025. Improving profit quality, dividend plan attracting investors Cssc Offshore & Marine Engineering's profits fluctuate significantly. On one hand, the gross profit margin steadily increases, but other expenses fluctuate, and on the other hand, it is affected by non-recurring projects, including government subsidies, gains from scrap fixed assets, and insurance claims payments. The company's gross profit margin in 2024 was 7.76%, an increase of 1.69 percentage points year-on-year, with a gross profit margin of 9.33% for shipbuilding products, up 3.86 percentage points year-on-year, contributing 103.7% of the gross profit. Within shipbuilding products, the gross profit margin for bulk carriers and container ships was 12.2% and 23.96% respectively, an increase of 11.84% and 10.9% year-on-year. Although the gross profit margin has improved significantly, due to industry cycles and non-recurring projects, the net profit margin for shareholders was 5.38%, 0.3%, and 1.94% in 2022-2024. However, since 2024, profits have continued to double, with non-recurring projects having a weaker impact on profitability. In 2024 and Q1 2025, the proportion of non-recurring net profit to shareholders' net profit was approximately 89% and 97% respectively, maintaining a healthy development of profit quality. Data source: Company financial report data processing In terms of expenses, core expenses have improved to some extent.In 2024, the administrative expense rate, which accounts for the majority of expenses, was 3.42%, a decrease of 0.69 percentage points year-on-year, while research and development expenses increased with a rate of 4.58%, up by 0.5 percentage points year-on-year. The overall expense rate remained stable. It is worth mentioning that although the company's profitability has improved, it is still relatively low, resulting in a low ROE level of 2.12% in 2024, which has been consistently below 5% in previous years.It is expected that the profitability of Cssc Offshore & Marine Engineering will further improve by 2025, but there is still a significant room for improvement in profit margin and ROE levels. As of December 2024, the company had cash and cash equivalents of 15.261 billion yuan, short-term borrowings of 598 million yuan, and long-term borrowings of only 4.05 billion yuan, indicating a very strong cash flow. This provides the company with a solid safety net to continue expanding into global markets and taking on more orders. In terms of shareholder returns, Cssc Offshore & Marine Engineering has been paying dividends every year since 2020. Due to profit impact, the dividend payout ratio has fluctuated significantly. However, according to data from Oriental Choice, the company has paid dividends 15 times since 2000, with a cumulative dividend payout ratio of 18.17%. According to the profit distribution plan for the mid-year of 2025, the total cash dividend for the mid-year shall not exceed 30% of the net profit attributable to the company's shareholders in the first half of 2025. The company has been favored by many investment banks. Zheshang's report believes that the shipbuilding industry's ship replacement cycle, environmental policies, and capacity constraints are driving the industry towards an upturn in the business cycle. The company's performance in Q1 2025 exceeded expectations, and with the integration of shipbuilding assets, the competitive landscape has improved and efficiency is expected to increase. Founder's report believes that the company is a large backbone shipbuilding enterprise under China Shipbuilding Corporation and a core military production enterprise of the country. With ample orders in hand, profitability is expected to stabilize with the delivery of high-priced ships. Overall, Cssc Offshore & Marine Engineering will continue to benefit from the high business cycle of the shipbuilding industry, and with its leading advantage, brand advantage, and technological advantage, it will achieve sustained high performance. With the upward trend in prices, profitability will continue to improve, as the core gross profit contribution of shipbuilding products will drive overall gross profit improvement, providing a high level of certainty for a substantial increase in profit margin in 2025. Although there are uncertainties (such as trade wars), the company's globalization strategy, with low revenue from risky regions, will have little impact on performance and profitability. Currently, the company is undervalued, with a PB ratio of only 0.7 times. With the certainty of profit growth in 2025, the dividend program may attract a large number of conservative investors.