China Shipbuilding
Industry
Plying through rough waters
The financial crisis has had a huge impact on the global
shipbuilding industry, and slumping shipping demand has
resulted in fewer new orders and plummeting prices. For
China’s shipbuilding industry, fortunately, the cost and
foreign exchange pressures have already subsided
somewhat. However, since a global economic recovery and
a rebound in shipping demand remain uncertain, it is
possible that the shipbuilding industry may deteriorate
further. We rate the A-shares in the shipbuilding industry
NEUTRAL. Since H shares have absolute value due to the
depressed share prices, we rate them OVERWEIGHT.
Key Points for Rating
􀂄 New contract orders will decelerate more than 40% YoY in
each of 2008 and 2009.
􀂄 Cost pressure to ease because steel prices have dropped
more than 40% since October.
􀂄 Renminbi appreciation has slowed because of the decline in
the growth rate of China’s exports and the easing of
inflationary pressure.
􀂄 The negative impact o n leading players, such as China State
Shipbuilding (CSS) and Guangzhou Shipyard International
(GSI) will be moderate because of their robust financial
positions and abundant cash in hand. Also, their order
books are sufficient for development until 2012.
Top Buy
􀂄 We recommend CSS in the A‐share market as the company
has the lowest valuation among international peers.
􀂄 We recommend GSI in the H‐share market as the company’s
value is lower than its net cash, so we see it as undervalued.
H OVERWEIGHT
14 January 2009
A NEUTRAL

Table of Contents
INVESTMENT STRATEGY & VALUATION .....................3
GLOBAL SHIPBUILDING INDUSTRY CYCLES ................7
COST ANALYSIS..................................................26
FOREIGN EXCHANGE EFFECTS...............................34
CHINA STATE SHIPBUILDING ...................................................37
GUANGZHOU SHIPYARD INT’L .................................................40
APPENDIX I. CHINESE SHIPYARDS AND CAPITAL
OPERATIONS ......................................................44
APPENDIX II. BASIC INFORMATION.........................54
LISTED COMPANIES IN THIS REPORT ......................56