Shanxi Fenjiu, Pechoin Lead; Photovolt. Rise.

On the evening of September 2nd, China Shipbuilding (600150) and China Shipbuilding Heavy Industry (601989) announced simultaneously that China Shipbuilding plans to merge with China Shipbuilding Heavy Industry by issuing A-shares to all shareholders of China Shipbuilding Heavy Industry in a share-for-share absorption. On the same day, both parties have signed the "Intention Agreement for Absorption Merger."

The announcement indicates that this transaction constitutes a related party transaction and is expected to constitute a significant asset restructuring as stipulated by the "Administrative Measures for Major Asset Restructuring of Listed Companies." This transaction will not result in a change of the actual controller of the company.

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As this transaction is still in the planning stage and there are uncertainties regarding the related matters, in order to ensure fair information disclosure, protect the interests of investors, and prevent abnormal fluctuations in the company's stock price, according to the relevant regulations of the Shanghai Stock Exchange, both China Shipbuilding and China Shipbuilding Heavy Industry will suspend trading starting from the opening of the market on September 3rd, 2024 (Tuesday), with an expected suspension period not exceeding 10 trading days.

As of the close on September 2nd, China Shipbuilding was reported at 34.9 yuan per share, with a total market value of 156.1 billion yuan; China Shipbuilding Heavy Industry was reported at 4.98 yuan per share, with a total market value of 113.6 billion yuan.

Public information shows that China Shipbuilding Heavy Industry is a leading public company specializing in ship research, design, and manufacturing, with main business areas including marine defense and marine development equipment, marine transportation equipment, deep-sea equipment, ship repair and refit, ship support and mechanical and electrical equipment, strategic emerging industries, and others.

China Shipbuilding's main business includes shipbuilding (military and civilian), ship repair, marine engineering, and mechanical and electrical equipment, making it the largest, most technologically advanced, and most comprehensive product-structured flagship public company in the domestic shipbuilding industry.

China Shipbuilding Heavy Industry is held by China Shipbuilding Heavy Industry Group Co., Ltd. at 34.53%, and China Shipbuilding is held by China Shipbuilding Industry Group Co., Ltd. at 44.47%. Both China Shipbuilding Heavy Industry Group Co., Ltd. and China Shipbuilding Industry Group Co., Ltd. are 100% owned by China Shipbuilding Group Co., Ltd.

Shipbuilding assembly, as the core business of China Shipbuilding Group's military and civilian ship business, is mainly undertaken by the listed companies China Shipbuilding and China Shipbuilding Heavy Industry, which were originally part of the two major groups.

After years of development and deep cultivation, both China Shipbuilding and China Shipbuilding Heavy Industry have formed a full industrial chain production and manufacturing system covering shipbuilding, ship repair, mechanical and electrical equipment, and other aspects of ship assembly, facing strategic tasks such as maritime security, deep-sea scientific research, and resource development, and continuously launching world-leading military and civilian products.

Under this background, China Shipbuilding and China Shipbuilding Heavy Industry have a high degree of business overlap in the field of ship assembly, constituting competition within the same industry.This announcement also states that the absorption merger is aimed at further focusing on the country's major strategies and the main responsibilities of strengthening the military through equipment, accelerating the high-quality development of shipbuilding business, standardizing competition within the same industry, and enhancing the operational quality of listed companies.

In the first half of 2024, the shipping market rose to high levels influenced by factors such as the Red Sea crisis. The cyclical replacement of shipping capacity and the green transformation of the maritime industry continue to drive strong demand for shipbuilding, maintaining a high level of prosperity in the shipbuilding industry.

According to Clarksons data, in the first half of 2024, a total of 1,247 new ships with a deadweight of 77.248 million tons were contracted globally (a year-on-year increase of 24.4%); a total of 1,282 ships with a deadweight of 47.515 million tons were delivered (a year-on-year increase of 1.8%); as of the end of June 2024, there were 6,388 ships with a deadweight of 314 million tons on order (a year-on-year increase of 18.5%).

In the first half of the year, the price of new ships approached the historical peak. In June 2024, the Clarkson Newbuilding Price Index closed at 187.2 points, an increase of 3.8% from the beginning of the year, only 2.3% below the peak in 2008, and the second-highest since 2008. Currently, the global shipbuilding industry has a large order backlog, with production schedules extending to 2028. Factors such as rising labor costs, supply chain pressures, and an increase in the proportion of high-tech ships are collectively driving up the comprehensive construction costs. The bargaining power of shipbuilding companies continues to increase, and there is still upward momentum in subsequent ship prices.

Driven by strong market demand, sufficient orders, and an optimized product structure, the profitability of global shipbuilding companies has generally improved. At the same time, the global shipbuilding industry's order backlog has exceeded 300 million deadweight tons, and the industry's production security coefficient has exceeded 3.5 years. The large order size and the increase in the proportion of high-tech ships have further increased the production load on companies, compounded by labor shortages and tight supply of key equipment and green power equipment, bringing considerable pressure to the production and delivery of shipbuilding companies.

In the first half of 2024, China's shipbuilding industry led the world in three major indicators.

According to data released by the Ministry of Industry and Information Technology, in the first half of the year, China's shipbuilding completion volume was 25.02 million deadweight tons, a year-on-year increase of 18.4%; the new order volume was 54.22 million deadweight tons, a year-on-year increase of 43.9%; as of the end of June, the order backlog was 171.55 million deadweight tons, a year-on-year increase of 38.6%. According to forecasts from the Economic Research Center of China Shipbuilding Group, the new ship order volume in 2024 is expected to exceed 100 million deadweight tons.

Against this backdrop, in the first half of 2024, both China Shipbuilding and China Shipbuilding Heavy Industry achieved double-digit growth in performance.

During the period, China Shipbuilding achieved a total operating income of 36.017 billion yuan, a year-on-year increase of 17.99%, of which the operating income from shipbuilding, repair, and offshore engineering business was 34.446 billion yuan, a year-on-year increase of 22.39%; it achieved a net profit attributable to the parent company of 1.412 billion yuan, a year-on-year increase of 155.31%.

China Shipbuilding Heavy Industry achieved a total operating income of 22.102 billion yuan, a year-on-year increase of 31.05%; it achieved a net profit attributable to the parent company of 532 million yuan, a year-on-year increase of 177.13%.