Dajin Heavy Industries Q126 Earnings Beat Expectations, Shipbuilding Business Becomes New Growth Driver

Overview

This report provides a detailed analysis of Dajin Heavy Industries' Q126 performance, indicating that its net profit grew by 88% year-on-year, primarily due to robust demand for offshore wind foundations and improved margins. Moreover, the research highlights that the shipbuilding business will serve as the company's second growth driver, expected to make substantial contributions to long-term profits. As such, UBS upgraded the price target to Rmb100.00 and reaffirmed the Buy rating.

Core views

Dajin Heavy Industries achieved a net profit of Rmb435 million in Q126, an increase of 88% compared to last year, with revenue growing by 67% year-over-year, mainly driven by strong demand for offshore wind foundations. Specifically: 1. **Core Drivers**: - Accelerated shipment volume of offshore wind foundations boosted income significantly. - Profit margin rose 8 percentage points year-over-year to 39.2% and also saw a month-over-month increase of 8 percentage points, primarily due to product price hikes and contributions from high-value-added services. 2. **Potential of Shipbuilding Business**: - The company plans to build two offshore installation vessels, with delivery expected in 2029. - It has secured Rmb10 billion in orders for marine engineering vessels and US$1.5 billion in commercial cargo vessel orders, with revenue recognition anticipated to start from 2027E. - The synergy between the shipbuilding business and wind foundation business is expected to further enhance profit margins. 3. **Valuation and Price Target Adjustment**: - Raised 2026-28E earnings per share forecasts by 5-6%, increasing the price target from Rmb79.00 to Rmb100.00. - Current valuation stands at 19 times 2027E PE, significantly below the industry average level of 0.6x PEG, making it attractive. In conclusion, the report argues that Dajin Heavy Industries has ample growth momentum and attractive valuations going forward.

Analysis framework

UBS conducted an in-depth analysis of Dajin Heavy Industries through the following steps: 1. **Financial Data Analysis**: The report meticulously broke down the company's financial performance in Q126, including changes in revenue, net profit, and profit margins, clearly identifying the growth in the offshore wind foundation business as the main driving force. 2. **Order and Market Prospects Evaluation**: By tracking and forecasting overseas wind foundation orders, the report believes the company will gain more market share in Europe and expects orders by the end of 2026 to grow from Rmb10 billion to Rmb20 billion. 3. **Evaluation of Shipbuilding Business Potential**: The report thoroughly analyzed the order situation of the shipbuilding business and its contribution to future profitability, noting that this business will become a new growth point. 4. **Valuation Method**: A DCF approach was employed, adjusting the target price to Rmb100.00 based on higher earnings predictions. Overall, the report comprehensively assesses Dajin Heavy Industries' current performance and future potential by integrating financial data, market prospects, and valuation models.

Methodology notes

• Valuation methodsDiscounted Cash Flow (DCF)

  Calculating the intrinsic value of a company using discounted free cash flows.

  The DCF method estimates the theoretical value of a company by projecting its future free cash flows and discounting them back to the present. In this case, the institution adjusted the WACC and terminal value assumptions based on higher earnings forecasts to arrive at the new price target.

• Fundamental Company & Financial FrameworkThree Statement Consistency Check

  Assessing the financial health of a company by analyzing the relationships among balance sheet, income statement, and cash flow statement.

  The report details the analysis of the company's revenue growth, changes in profit margins, and capital expenditure, verifying the authenticity of the company's profitability and growth potential.

• Industry / Industrial Analysis FrameworkSupply and Demand Framework

  Analyzing the supply-demand landscape of an industry to gauge a company's market share and pricing power.

  The report notes a global shortage of offshore wind foundation supplies, and with cost advantages and capacity expansions, Dajin Heavy Industries is poised to capture more orders globally.

Asset mapping & comparison

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

• 002487.SS

  Dajin Heavy Industries' core operations benefit from growing demand for offshore wind foundations and the extension of shipbuilding activities.

  Strengths

  Leading market share and cost advantages, with shipbuilding emerging as a new growth driver.

  Weaknesses

  Fluctuations in raw material prices could impact margins.

  Comparison

  Compared to peers, the company has a competitive edge in its overseas market presence.

  Risks

  Lower-than-expected growth in overseas wind foundation orders; rising raw material costs; intensifying competition.

Key data

• Q126 Net ProfitRmb435mUp 88% YoY
• Q126 RevenueUp 67% YoYMainly driven by strong demand for offshore wind foundations
• Profit Margin39.2%Up 8 percentage points YoY and MoM
• Price TargetRmb100.00An increase from Rmb79.00 previously
• 2026E EPSRmb2.92YoY growth rate of 67.3%

Impact & implications

Dajin Heavy Industries' outstanding Q126 results have laid a solid foundation for the company's growth, especially with the expansion of the shipbuilding business providing new sources of profit. The report suggests that with continued growth in overseas wind foundation orders and expansion into high-value-added businesses, the company's profit growth over the next few years is likely to remain at a high level. Additionally, the current valuation of just 19x 2027E PE is far below the industry average, indicating significant investment appeal.

Risks

• Lower-than-expected growth in overseas wind foundation orders.
• Sharp rise in raw material prices squeezing margins.
• Government opening more ports leading to heightened market competition.

What to watch

• Continued growth in overseas wind foundation orders.
• Actual progress and profit contribution from the shipbuilding business.
• Impact of raw material price fluctuations on company costs.