China Merchants Securities: In H1 2025, the shipbuilding sector's stock price performance is under pressure, but we remain optimistic about the subsequent volume increase of mainstream ship types

According to the Zhitong Finance APP, China Merchants Securities released a research report stating that the stock price performance of the shipbuilding sector will be under pressure in the first half of 2025, with a significant year-on-year decline in fund holdings. The core reason for the weak stock price performance is the sluggish volume and price in the ship market during the first half of the year. Nevertheless, the performance of ship stocks is impressive, with pre-orders gradually translating into earnings, and profit growth far exceeding revenue growth. Looking ahead, although short-term orders are under pressure, the order capacity ratio for mainstream ship types, especially bulk carriers and medium to large oil tankers, remains relatively low, which still has room for growth, continuing to drive the shipbuilding cycle upward. Additionally, a potential interest rate cut by the U.S. dollar is expected to catalyze the supply-demand imbalance against the backdrop of aging capacity.

Key Points from China Merchants Securities:

China Merchants Securities pointed out that the stock price performance of the shipbuilding sector was under pressure in the first half of the year, with most failing to outperform the CSI 300. The fund holding ratio of typical China Shipbuilding Industry Corporation companies declined year-on-year in Q2 2025, but increased compared to Q1. In 2025, the shipbuilding sector's stock prices are generally under pressure due to the continuous decline in new ship orders and the impact of the U.S. Section 301 sanctions on China's shipbuilding industry.

In H1 2025, among the listed companies, only China Shipbuilding Industry Corporation (A) outperformed the CSI 300, thanks to its relative boost from the Hong Kong stock market. From the perspective of fund holdings, taking China Shipbuilding as an example, the fund holding ratios in Q1 and Q2 2025 decreased by 3.8 percentage points and 4.9 percentage points year-on-year, respectively. Nevertheless, the fund holding ratio in Q2 2025 showed a significant increase compared to Q1, indicating that institutions are re-expanding their layout in the China Shipbuilding sector.

The performance of ship stocks in the first half of the year is impressive, with most companies seeing profit growth far exceeding revenue growth.

The core reason for the substantial growth in performance is that high-priced orders from around 2022 are gradually entering a concentrated delivery period, and the steel costs during this phase have significantly decreased compared to 2021, contributing to the profit margin. Additionally, from the performance of key subsidiaries of China Shipbuilding, representative private shipyards such as Waigaoqiao and China Shipbuilding Chengxi have achieved continuous growth in net profit margin and ROE over multiple reporting periods.

From a fundamental perspective, the ship market's prosperity in the first half of the year is poor, with new orders and new ship prices under significant downward pressure.

Firstly, the downstream shipping market has experienced significant freight rate downturns, with the average year-on-year decline in freight rates for major ship types exceeding 20%. LNG carriers and car carriers saw the largest declines, while oil tankers experienced a slight increase compared to the previous period. Secondly, all months this year have seen a significant year-on-year decline in global new orders. In May of this year, the global new ship order volume fell to 1.67 million CGT, marking the lowest monthly level in nearly four years. The Clarkson Global Newbuilding Price Index dropped from a peak of 189.96 in September 2024 to 186.69 in May 2025.

The decline in the domestic ship market's prosperity is mainly attributed to the U.S. Section 301 sanctions, the overdrawn orders from 2024, and the relatively low willingness of domestic first-tier shipyards to take orders. In the long term, the shipbuilding industry is experiencing a short-term trough, but the order capacity ratios for bulk carriers and oil tankers are relatively low, and the aging of ships continues to accumulate, suggesting that the subsequent ship market cycle is likely to benefit from the increase in mainstream ship types.

In June 2025, the order capacity ratios for bulk carriers and oil tankers were only 10.4% and 15%, respectively, which is not only far below the 39.4% level of container ships but also at the bottom range historically The external manifestation of the shipping cycle is the rotation of different ship types. The lack of recovery in orders for bulk carriers and oil tankers, which account for a large proportion of the global fleet's tonnage, indicates that this cycle is still far from its peak. BIMCO estimates that the potential number of scrapped ships in the next decade will reach 16,000, totaling 700 million deadweight tons (DWT), higher than the previous estimate of 15,000. This figure is equivalent to twice the number of ships scrapped in the past decade and nearly three times the deadweight tonnage scrapped.

Continue to Recommend the Shipping Sector

Although short-term orders are under pressure, the order capacity ratio for mainstream ship types, especially bulk carriers and medium to large oil tankers, remains relatively low. Additionally, the expected interest rate cuts by the U.S. dollar may catalyze the supply-demand imbalance against the backdrop of aging capacity. Therefore, we continue to strongly recommend China Shipbuilding (600150.SH) and China Power (600482.SH), and suggest paying attention to China Shipbuilding Industry Corporation (600685.SH), China International Marine Containers (000039.SZ), Yaxing Anchor Chain (601890.SH), and RHI (002483.SZ) among shipbuilding and supporting equipment companies.

Risk Warning

Ship renewal may not meet expectations; the Federal Reserve's interest rate cuts may not meet expectations; the cost of raw materials or supporting equipment may continue to rise; global shipping carbon reduction progress may not meet expectations