CSICPCL(600482) 长江证券·2024-05-28 05:01Investment Rating - The report assigns a "Buy" rating to China Power (600482 SH) for the first time [5] Core Views - China Power is the leader in marine power systems with significant earnings elasticity in its diesel engine business [5] - The company is expected to benefit from the upward cycle of the shipbuilding industry and the increasing proportion of high-value orders [5] - The global shipbuilding industry is experiencing a long-term upward trend with green shipbuilding accelerating [6] - China Power has a dominant market share in low-speed marine engines backed by China Shipbuilding Group [7] - The company's profitability is expected to improve gradually with enhanced R&D capabilities [8] Business Overview - China Power is a leading domestic marine power system company with seven major power businesses including gas power steam power chemical power all-electric power diesel engine power hot gas engine power and nuclear power equipment [5] - The company's diesel engine business accounted for 38 17% of total revenue in 2023 up 4 8 percentage points year-on-year [5] - The company's revenue in 2023 reached 45 1 billion yuan a year-on-year increase of 17 8% [18] Industry Trends - The global shipbuilding industry is expected to maintain its upward trend with about 30% of ships entering the replacement phase by 2027 [6] - The green transformation of the global shipping industry is accelerating with demand for green ships expected to continue rising [6] - The shipbuilding industry is facing supply bottlenecks which are expected to drive up ship prices [6] - China's shipbuilding industry is rapidly increasing its global market share with new shipbuilding difficulties expected to further enhance the earnings elasticity of leading companies [6] Competitive Advantages - China Power is backed by China Shipbuilding Group which holds over 50% of the company's shares [7] - The company has a leading market share in low-speed marine engines with its subsidiary China Shipbuilding Diesel Engine ranking first in the market [7] - The company has significant advantages in channels and technology benefiting from the current industry cycle and increasing industry concentration [15] Profitability and R&D - The company's diesel engine business gross margin has declined from 25% in 2016 to 14% in 2022 but is expected to recover with the industry cycle and higher-value orders [8] - The company's R&D expenditure increased from 770 million yuan in 2018 to 2 55 billion yuan in 2022 with a CAGR of 35% [55] - In 2023 the company's R&D expenditure exceeded 2 billion yuan [56] Future Outlook - The company is expected to achieve net profits of 1 45 billion yuan and 2 29 billion yuan in 2024 and 2025 respectively with corresponding P/E ratios of 30 and 19 [8] - The company's profitability is expected to continue improving with a full order book and strong ability to secure high-quality orders [21] - The company's dual-fuel engines are becoming an important revenue source with methanol and ammonia dual-fuel engines under development [54]