China State Shipbuilding Co. Ltd (CSSC: 600150), China's largest shipbuilder, has a fully arranged schedule for building ordered ships from 2008-2010. Ship repairing business is also booming. It is estimated that the price of dry cargo shipping will increase by 20% in 2008, 13% in 2009 and 10% in 2010. Thanks to higher efficiency in shipbuilding and the ship price hike, the company will see rapid growth in the next three years. In 2007, gross margin for its shipbuilding business was 25%. As bulk cargo vessels' delivery price is continuously increasing, gross margin for the next three years will still see stable growth even taking steel price hikes and exchange rate factors into consideration. It is expected gross margin for 2008 will be 27.6%, 28.8% in 2009 and 31.2% in 2010. Meanwhile, although 2009 and 2010 will see the peak for the delivery of new ships, it is expected the turning point for the global ship building industry won't come until 2012.

The 2007 Annual Report of China State Shipbuilding Company showed rapid growth in profitability after ship building and ship repairing businesses were introduced into the company. In 2007, the company posted 52.5% YOY growth in main business revenue, which was RMB 17.88 bln. Net profit grew 139.3% to RMB 2.92 bln. Ship building and repairing revenue, which were its main profit sources, accounted for 80% of its revenue. Revenue from ship building was RMB 12.44 bln, increasing by 67.6% YOY; revenue from ship repairing was RMB 1.94 bln, increasing by 22.5%. Its diesel engine business revenue in 2007 was RMB 2.51 bln, growing 20.4% YOY with a net profit of RMB 300 mln.

Source: China Securities Journal

Date: 5 May 2008

CN01/SW/KM/WH