Shenwan Hongyuan Group Co., Ltd. has released a research report indicating that the successful listing of the Shipbuilding Industry Chain ETF (560710), the first of its kind in China, covers core targets across the entire industrial chain and is expected to enhance liquidity in the sector. The shipbuilding industry chain is characterized by heavy asset investment and is less susceptible to technological obsolescence, qualifying as a HALO-type asset. Currently, the latest one-year time charter rate for VLCCs has risen to $92,500 per day, reflecting tight market supply and persistently high industry prosperity. Ship prices are anticipated to rise in the future, which may lead to upward revisions in the long-term earnings expectations of shipbuilding companies. Investors are advised to focus on undervalued shipbuilding stocks.
Key insights from Shenwan Hongyuan are as follows: VLCC time charter rates are approaching $100,000 per day, and the high level of industry prosperity is expected to gradually transmit upstream to the shipbuilding sector. The significant increase in tanker time charter rates underscores robust market conditions. Supply-side constraints in the tanker shipping market remain strong, while demand-side dynamics are influenced by structural shifts between black oil and compliant oil, supporting a medium-term upward trend. The current VLCC one-year time charter rate of $92,500 per day highlights supply shortages and sustained high market activity.
The container shipping sector has entered a new round of capacity competition, with the contribution potential of future new orders being underestimated. Liner companies, bolstered by ample cash reserves following strong market conditions in 2021 and 2024, are increasing capacity as a necessary step to expand market share. The B2C business model in container shipping fosters customer loyalty, making additional capacity a critical tool for market growth. The ongoing capacity race has begun, with significant disparities in existing shipbuilding orders among liner companies, suggesting sustained demand for new orders in the future.
Second-hand ship prices continue to recover, with the term structure of certain vessel asset values entering a backwardation (BACK) pattern. New shipbuilding prices are showing signs of stabilization and are expected to rise. Second-hand prices for some vessel types have surpassed newbuilding prices, indicating a BACK structure in asset value term curves. The second-hand ship price index has risen for 12 consecutive months. Currently, five-year second-hand VLCC prices exceed newbuilding prices, reflecting intensified supply-demand tensions. New shipbuilding prices have ended their unilateral decline and entered a phase of fluctuation, with expectations of a future upward trajectory.
Rising ship prices may lead to improved long-term earnings outlooks for shipbuilding firms. Investors should monitor undervalued shipbuilding stocks such as China State Shipbuilding Co., Ltd. and China CSSC Holdings Limited (H-shares), which have order backlogs of approximately RMB 64.9 billion and $7.6 billion, respectively, with market-cap-to-order ratios of 0.64x and 0.41x, historically low levels. Other companies to watch include China Shipbuilding Industry Group Power Co., Ltd., ST Songfa, Sumec, and Yangzijiang Shipbuilding.
Risk factors include weaker-than-expected new orders in the commercial shipbuilding sector, a downturn in shipping market conditions, sharp increases in raw material costs such as steel, significant appreciation of the RMB, and heightened competition from emerging shipbuilding nations in Southeast Asia and other regions.