Shenwan Hongyuan Group Co., Ltd. released a research report, initiating coverage on COMEC (00317) with a "Buy" rating. The company benefits from the global shipbuilding cycle upturn and its own capacity expansion. Net profit attributable to shareholders is projected at RMB 1.1 billion, RMB 1.7 billion, and RMB 2.8 billion for 2025-2027 respectively, corresponding to PE ratios of 18x, 11x, and 7x. The current market value to order book ratio (PO) stands at 0.42x, significantly below the 10-year average of 0.53x, at historical lows. Combined with accelerated delivery of high-priced orders, sufficient old vessel replacement demand, and expectations for resolving same-industry competition, the company has ample room for performance flexibility and valuation recovery.

Shenwan Hongyuan Group Co., Ltd.'s main viewpoints are as follows:

**Persistent supply-demand tension in the shipbuilding industry**

On the demand side, old vessel replacement remains the core theme, with replacement progress for all vessel types just over halfway, indicating sufficient replacement demand. New environmental regulations in this cycle are expected to extend the replacement cycle. On the supply side, the number of active global shipyards declined significantly after the previous cycle, with current capacity at only 74% of the previous peak. Even if capacity recovers to 85% of the previous peak by 2030, it still cannot meet long-term delivery demand. The tight supply-demand balance supports sustained high ship prices.

**Changes in pessimistic factors that have suppressed China's shipbuilding market since early this year**

The US Trade Representative's Office conducted investigations into China's maritime, logistics, and shipbuilding sectors under Section 301 and issued policy announcements. Constrained by this, shipowners have maintained a wait-and-see attitude since early this year, leading to a significant decline in shipbuilding market transaction volume and downward pressure on ship prices. After the initial Section 301 proposal was released in February 2025, China's new shipbuilding orders were surpassed by South Korea in March. However, the second version of the Section 301 proposal in April showed significant relaxation compared to the previous version, and Chinese shipyards' new order volumes returned to first place on a monthly basis. Previously accumulated shipbuilding demand is expected to be released, driving up order volumes and ship prices again.

**Company's 2028 production schedule shows significant improvement over 2027, providing ample long-term performance flexibility**

According to Clarkson data, under CGT metrics, Huangpu Wenchong and Guangzhou Shipyard International's 2028 production schedules increased by 58% and 34% respectively compared to 2027. In terms of value, both shipyards' 2028 production schedules increased by 61% and 41% respectively compared to 2027. Current delivery orders were mostly signed during the ship price upturn cycle that began in 2021, and steel procurement costs have declined with falling steel prices, creating a persistent scissors effect between high-priced orders and low-cost steel prices. Capacity expansion accompanied by profit margin improvement can provide the company with ample performance flexibility.

**Focus on progress in resolving same-industry competition issues within China State Shipbuilding Corporation**

China State Shipbuilding Corporation attaches importance to resolving same-industry competition issues and made commitments regarding this resolution in January 2025. The group committed to resolving same-industry competition issues between Huangpu Wenchong and China Shipbuilding Industry Company within five years, and subsequent progress deserves attention.

**Risk warnings:** New civilian vessel orders falling short of expectations, declining shipping market sentiment, significant steel price increases, and substantial RMB appreciation.