2Q26 results strongly exceeded expectations; Goldman Sachs maintains its Buy rating on Guangdong Songfa Ceramics Co and raises the target price to Rmb200

Overview

This report is Goldman Sachs' earnings review of Guangdong Songfa Ceramics Co (603268.SS). The company's core asset, Hengli Heavy Industry, released its 1H26 earnings preview, implying 2Q26 net profit of approximately Rmb2.5bn and adjusted net profit of approximately Rmb2.4bn, significantly above Goldman Sachs' previous estimate of Rmb1.8bn. Goldman Sachs attributed the outperformance to three factors: commencing block construction ahead of the formal commissioning of the Phase 3 dock, better-than-expected margins driven by product mix improvement, and improved operating efficiency demonstrated by the delivery of two VLCCs at least three months ahead of schedule in 2Q26.

Core views

Goldman Sachs maintains its Buy view and believes Hengli Heavy Industry could become the world's second-largest shipbuilder in 2027E. The report forecasts a 29% CAGR in the company's capacity from 2025E to 2027E, significantly above the global industry average of approximately 3%, driving its capacity market share to 7% by end-2026E. Meanwhile, the oil tanker supercycle, global fleet aging, and shorter delivery lead times should support new orders. The company's order coverage is approximately 2.7 years, below the global/China averages of 3.6 years/4.0 years, providing a competitive advantage in winning orders.

Analysis framework

The report primarily analyzes earnings decomposition, comparisons of delivery schedules, order coverage, capacity expansion assumptions, and relative valuation. Goldman Sachs compared Hengli's delivery schedule as of July 2026 with that as of March 2026, concluding that more high-margin oil tankers and container ships had entered construction earlier. It also assessed medium-term earnings sustainability based on the order book, industry-average order coverage, oil tanker demand, and the aging fleet cycle.

Methodology notes

• Valuation methodologyTarget P/E valuation

  2028E P/E 12x

  The 12-month target price of Rmb200 per share is based on 2028E earnings per share and a 12x target P/E, with the multiple referenced to the average level of Chinese and Korean shipbuilders.

• Earnings forecastsGS Forecast

  2026E-2028E earnings upgrades

  Goldman Sachs raised its 2026E/2027E/2028E net profit forecasts to Rmb9.2bn/Rmb14.4bn/Rmb16.2bn, mainly reflecting higher margins from earlier capacity release and improved operating efficiency in 2Q26.

• Industry analysisOrder coverage and capacity expansion analysis

  Shorter order coverage creates an advantage in winning orders

  Hengli's order coverage is approximately 2.7 years, below the global average of approximately 3.8 years; against a backdrop of scarce 2028 berths at leading shipyards, the shorter delivery cycle should help attract new orders.

• Disclosure frameworkGS Factor Profile

  Growth, financial returns, valuation multiples, and composite factors

  The Goldman Sachs Factor Profile provides investment-context comparisons for stocks based on attributes including growth, financial returns, valuation multiples, and composite percentiles.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Guangdong Songfa Ceramics Co (603268.SS)

  The research subject; exposed to shipbuilding capacity expansion and the vessel order cycle through its core asset, Hengli Heavy Industry.

  Strengths

  Strong 2Q26 earnings outperformance and upward earnings revisions; target price raised; shorter order coverage supports winning new orders when delivery berths are scarce.

  Weaknesses

  Earnings are highly dependent on shipbuilding delivery schedules, capacity release, and order execution; delays in new capacity or deliveries could pressure earnings realization.

  Comparison

  Goldman Sachs expects Hengli's 2025-2027E capacity CAGR to be 29%, above the global industry average of approximately 3%; its 2.7-year order coverage is below the global/China averages of 3.6 years/4.0 years.

  Risks

  Delays in vessel deliveries or new capacity release, higher-than-expected steel prices, lower-than-expected new orders, lower-than-expected average selling prices, stronger-than-expected RMB appreciation against the US dollar, and faster-than-expected capacity expansion by other shipyards.

• Hengli Heavy Industry

  The primary asset of Guangdong Songfa Ceramics Co and the core driver of the report's earnings upgrade and investment thesis.

  Strengths

  Early commencement of block construction, commissioning of the Phase 3 dock, early delivery of VLCCs, strong order momentum, and potential benefits from the oil tanker supercycle and replacement of the aging fleet.

  Weaknesses

  Capacity expansion must be commissioned on schedule and filled with orders; an industry downturn or changes in order mix would weaken earnings sensitivity.

  Comparison

  The report believes it could become the world's second-largest shipbuilder in 2027E, while its shorter delivery cycle makes it relatively more attractive for winning orders than leading shipyards.

  Risks

  There remains uncertainty over whether Phase 4 capacity expansion will ultimately be implemented, while newbuild prices, steel costs, and foreign exchange fluctuations could affect margins.

Key data

• 12-month target priceRmb200.00Raised 8% from Rmb185, based on an unchanged 2028E P/E of 12x.
• Current share priceRmb160.37Price listed on the report cover.
• Implied upside24.7%Calculated from the Rmb200 target price relative to the Rmb160.37 share price.
• 1H26 preliminary net profitApproximately Rmb3.6bnThe company released its 1H26 earnings preview after market close on July 7, 2026.
• Implied 2Q26 net profitApproximately Rmb2.5bnApproximately 129% quarter-on-quarter growth, above Goldman Sachs' previous estimate of Rmb1.8bn.
• Implied 2Q26 adjusted net profitApproximately Rmb2.4bnApproximately 120% quarter-on-quarter growth.
• 2026E/2027E/2028E net profit forecastsRmb9.2bn/Rmb14.4bn/Rmb16.2bnRaised 22%/10%/8%, respectively, from previous forecasts.
• 2026E/2027E/2028E EPSRmb9.51/Rmb14.80/Rmb16.67From Goldman Sachs' forecast table.
• 2026E/2027E/2028E P/E16.9x/10.8x/9.6xFrom the valuation table.
• Market capitalizationRmb155.7bn / $22.9bnKey data on the report cover.
• Enterprise valueRmb163.7bn / $24.1bnKey data on the report cover.
• M&A Rank3The report states that 3 represents a relatively low probability of M&A.

Impact & implications

The report's implications for the stock are positive: near-term earnings outperformance validates Hengli Heavy Industry's capacity ramp-up and execution efficiency, while medium-term order and capacity expansion prospects support upward revisions to earnings forecasts. If Phase 4 capacity expansion is implemented and oil tanker and container ship orders remain strong, the company's earnings could have further upside; however, the shipbuilding cycle, steel prices, foreign exchange rates, and capacity expansion by peers could affect valuation and earnings realization.

Risks

• Delays in vessel deliveries or new capacity release.
• Steel prices higher than expected.
• New order acquisition below expectations.
• Average selling prices below expectations.
• Stronger-than-expected RMB appreciation against the US dollar.
• Faster-than-expected capacity expansion by other shipyards.
• The shipping and shipbuilding industries are cyclical, and external data and forecasts are subject to uncertainty.

What to watch

• Hengli Heavy Industry's Phase 3 capacity ramp-up and subsequent delivery schedule.
• Whether Phase 4 capacity expansion is ultimately confirmed and its timetable.
• The volume, pricing, and delivery years of new oil tanker and container ship orders.
• The degree of berth supply tightness at leading global shipyards in 2028-2029.
• The impact of steel prices, the RMB-US dollar exchange rate, and newbuild prices on margins.
• Whether the company's earnings continue their upward trend in subsequent quarters.