Key takeaway

The company's revenue and profit growth accelerated in 2Q26, with its net margin reaching 17.21% and improving significantly both YoY and QoQ. Amid the highly favorable shipping cycle, the company fully leveraged its advantages in scale, location, operating efficiency, and industry support capabilities, continuing to deliver strong earnings growth. The company secured orders for 207 vessels in 1H26, and its current order backlog has filled its production schedule through 2030. Its order backlog remains firmly in the top tier among private shipbuilders in China, laying a foundation for subsequent earnings growth. The company maintained strong momentum in new orders, while its order mix continued to improve and upgrade. It is well positioned to achieve both volume and price growth during the major upcycle in the shipping industry. Coupled with the continued ramp-up of efficient capacity and improvements in production and operating efficiency, the company is expected to unlock substantial earnings upside.

Event

The company released its 1H26 report. Revenue reached RMB23.504bn, up 251.87% YoY, while net profit attributable to shareholders of the parent company reached RMB3.609bn, up 457.67% YoY. In 2Q26, revenue reached RMB14.616bn, up 294.20% YoY, while net profit attributable to shareholders of the parent company reached RMB2.515bn, up 540.04% YoY.

Quick Take

Rapid earnings growth and substantial profitability improvement

The global shipbuilding industry remained in a highly favorable cycle, while stricter environmental regulations and the replacement of aging vessels drove increases in both volume and prices in the newbuild market. The company leveraged its comprehensive advantages in scale, location, operating efficiency, and industry support capabilities. Cost reductions and efficiency gains from in-house engine production, together with its batchbased and takt-time production model, enabled the company to fully utilize its capacity and further strengthen its economies of scale. The company's vessel construction starts and deliveries both increased in 1H26, driving substantial growth in revenue and net profit attributable to shareholders of the parent company. On a sequential basis, the company's gross margin reached 24.98% in 2Q26, up 3.99 pcts YoY and 3.49 pcts QoQ, while its net margin reached 17.21%, up 7.12 pcts YoY and 4.91 pcts QoQ. The substantial YoY and QoQ improvement in profitability fully demonstrates the significant earnings upside created by the company's comprehensive advantages amid the highly favorable industry cycle, with strong earnings growth continuing to materialize.

Continued optimization of new order mix, with a full production schedule and active capacity expansion

In 1H26, the company secured new orders for 207 vessels and delivered 40 high-quality vessels, recording strong performance across key operating indicators such as new orders and production deliveries. Its order backlog for very large crude carriers (VLCCs) ranked first among individual shipyards worldwide. The company continued to optimize its order mix. New orders included 94 tankers, 56 container ships, 49 bulk carriers, and eight very large ammonia carriers (VLACs), achieving comprehensive breakthroughs across container ships, bulk carriers, tankers, and gas carriers. Tankers and container ships together accounted for more than 70% of new orders, while high-value-added vessel types have become the mainstay of its order book. The company also established a key strategic foothold in the gas carrier market.

The company’s current order backlog has filled its production schedule through 2030, placing it firmly in the first tier of privately owned shipbuilders in China. The company has established annual steel processing capacity of 3mn tonnes, with four extra-large dry docks and world-class slipways. The company has moved beyond the traditional customized single-vessel model. By focusing on capacity intensification, process optimization, and supply chain coordination, it has built an efficient production system featuring the parallel construction and centralized undocking of multiple vessels, delivering step-change improvements in production organization capabilities and order fulfillment efficiency.

Earnings forecast and investment recommendation

The company’s revenue is mainly derived from: ① shipbuilding and related products; ② other principal businesses; and ③ other businesses. We forecast each segment separately:

Shipbuilding and related products: In 2025, the company generated operating revenue of RMB20.864bn from shipbuilding and related products. In 1H26, the company secured new orders for 207 vessels, achieving comprehensive breakthroughs across container ships, bulk carriers, tankers, and gas carriers. Its vessel delivery schedule has been filled through 2030, and its order backlog places it firmly in the first tier of privately owned shipbuilders in China. Meanwhile, the company is actively expanding capacity and continuously improving production efficiency to support the full ramp-up of capacity. Revenue from this segment is expected to grow rapidly, and we forecast revenue growth of 155%, 45%, and 16% for 2026, 2027, and 2028, respectively.

Other principal businesses: In 2025, the company generated revenue of RMB98mn from other principal businesses, down 80% YoY. We forecast revenue growth of -50%, -30%, and -20% for this segment in 2026, 2027, and 2028, respectively.

Other businesses (non-principal): In 2025, the company generated revenue of RMB676mn from other businesses (non-principal). We expect this segment's revenue to grow by 30%, 30%, and 30% in 2026, 2027, and 2028, respectively.

Investment recommendation: The company has strong momentum in new orders, while its order mix continues to improve and upgrade. It is well positioned to achieve higher sales volume and prices during the major upcycle in shipbuilding. The continued ramp-up of efficient capacity and improvements in production and operating efficiency are also expected to unlock substantial earnings upside. We expect the company to achieve operating revenue of RMB54.133bn, RMB78.324bn, and RMB90.617bn in 2026, 2027, and 2028, respectively, representing YoY growth of 150.16%, 44.69%, and 15.70%. Net profit attributable to shareholders of the parent company is expected to reach RMB9.204bn, RMB15.556bn, and RMB20.005bn, respectively, representing YoY growth of 246.73%, 69.00%, and 28.60%. The corresponding PE multiples are 20.70x, 12.25x, and 9.52x. We initiate coverage with “Buy” rating.

Risks:

Risk of intensifying market competition. The shipbuilding industry is highly competitive, and the company faces direct competition from shipyards worldwide. If the company fails to promptly adapt to the shift toward high-end, green, and intelligent solutions, its competitive advantages may gradually weaken, adversely affecting its operating results and long-term development.

Risks of fluctuating raw material prices. The main raw materials used in the company's products include marine plates, marine sections, other metal materials, and purchased equipment. If commodity prices, including steel prices, rise sharply and the company cannot fully offset the impact of raw material price fluctuations through price adjustments or negotiations with customers over payment schedules, project gross margins and profitability may be adversely affected.

Risks related to debt repayment capacity and cash flow volatility. Given the high cost and long construction cycle of vessels, shipowners generally make advance payments in installments. Shipbuilders therefore typically have high debt-to-asset ratios. If adverse changes occur in the company's order deliveries, working capital turnover, or financing environment, the company may face certain debt repayment risks.

Foreign exchange rate fluctuation risk. The company's business covers multiple regions, including Asia and Europe, and sales to overseas customers are mainly settled in foreign currencies such as the US dollar. If exchange rates fluctuate significantly in the future, the company may incur foreign exchange losses, which could adversely affect its production, operations, and financial performance.

(5) Risk of earnings miss. Gross margin is a key assumption affecting the company's earnings forecasts. Factors such as rising raw material prices, weaker-than-expected downstream demand, and intensifying competition in the shipbuilding industry may cause gross margin to fall short of expectations, thereby affecting the company's earnings performance. If the company's gross margin in 2026-2028 is 3 pcts below the current forecasts, at 22.71%, 25.21%, and 27.65%, respectively, the corresponding net profit attributable to shareholders of the parent company will be RMB7.850bn, RMB13.593bn, and RMB17.730bn, down 14.72%, 12.61%, and 11.37% from the current forecasts, respectively.