Shenwan Hongyuan Group Co., Ltd. released a research report stating that the recent strong performance in the tanker shipping market is now extending to the shipbuilding sector. Tankers have been the primary driver of new shipbuilding orders for two consecutive months, contributing to a broader recovery in the shipbuilding market. Secondhand vessel prices have increased for 13 months in a row, with prices for some vessel types exceeding those of newbuildings, creating a backwardation structure in asset pricing. The report indicates that shipbuilding companies are generally trading at low valuation levels, presenting opportunities for future earnings recovery as vessel prices rise. Key points from Shenwan Hongyuan are as follows.

First, the robust conditions in the tanker shipping market are transferring to shipbuilding, with tankers becoming the main source of new orders. Tight supply and demand dynamics in tanker shipping, combined with geopolitical tensions, pushed VLCC spot rates to record highs in early March 2026, while one-year time charter rates approached $140,000 per day, reflecting sustained market enthusiasm. In this favorable environment, shipowners are accelerating orders, and tankers have led new order bookings in the shipbuilding sector for two months, boosting overall market sentiment.

Second, ST Songfa released its annual report, with performance nearing the upper end of its forecast range. According to the announcement, the company reported revenue of 21.64 billion yuan for 2025, a 275% year-on-year increase. Net profit attributable to shareholders reached 2.65 billion yuan, up 1083% year-on-year, with 1.38 billion yuan in the fourth quarter alone, representing a 122% increase from the third quarter. The net profit margin for Q4 2025 was 14.0%, up 1.7 percentage points from the previous quarter. Full-year results were close to the top of the pre-announced range. The company committed to distributing no less than 10% of its distributable profits as dividends annually from 2026 to 2028, provided it remains profitable and has positive distributable earnings.

Hengli Heavy Industry is the most direct beneficiary of the surge in tanker orders and maintains continuous order-taking capability. With most major shipyards operating at full capacity, Hengli Heavy Industry, which is still ramping up production, stands out in securing new contracts. Since the beginning of 2026, Hengli Heavy Industry has signed orders for over 40 VLCCs, increasing its order book value from $19.5 billion at the start of the year to $26 billion rapidly. The company remains a primary beneficiary of the strong tanker market within the shipbuilding industry. With additional production lines under construction and a multi-vessel construction model that enhances capacity, its current order book does not fully utilize its future capacity, supporting ongoing order intake.

Secondhand vessel prices continue to rise, while newbuilding prices show divergence, with tanker newbuilds leading a potential broad-based increase in vessel price indices. Secondhand prices have climbed for 13 consecutive months, and for certain vessel types, they now exceed newbuilding prices, indicating a backwardation pattern. Newbuilding prices are showing signs of stabilization, with variations across vessel types; tanker newbuild prices are the first to enter a recovery trend. As different vessel types share shipyard capacity, the high volume of tanker orders is expected to lift other segments into a phase of rising volumes and prices.

Shipbuilding companies are generally trading at low valuations, highlighting opportunities for future earnings improvement as vessel prices recover. China State Shipbuilding Corporation and China CSSC Holdings Limited (H-shares) have order books valued at approximately $64.9 billion and $7.6 billion, respectively, with market-cap-to-order-book ratios of 0.63 and 0.39, indicating historically low levels. Attention is also on ST Songfa, Yangzijiang Shipbuilding, and Sumec Group.

Risks include potential underperformance in new civilian ship orders, a downturn in shipping market conditions, significant increases in steel prices, and the possibility of failure to approve proposed private placement plans.