J.P. Morgan: China CSSC’s third-quarter deliveries slowed more than expected; fourth-quarter profit expected to rebound sequentially

Why did third-quarter earnings miss expectations?

Commercial vessel deliveries fell 26% quarter on quarter in compensated gross tonnage, according to Clarksons, with the seasonal slowdown more pronounced than JPMorgan expected. Revenue was 39.6 billion yuan, down 18% quarter on quarter and up 14% year on year; net profit attributable to shareholders was 3.5 billion yuan, down 32% quarter on quarter and up 68% year on year.
Shipyards in southern China were more heavily affected by high temperatures and adverse weather during the summer. The bank believes heightened safety inspections following the Qingdao Beihai fire in September may also have had an impact, but the extent of the impact on the group cannot yet be quantified.
Lower output reduced the dilution of fixed costs. Recurring net profit fell 24% quarter on quarter to 3.8 billion yuan, and the recurring net margin fell 0.7 percentage points to 9.6%. The quarter also included 692 million yuan in merger-related taxes and charges, partly offset by other non-recurring gains.

Despite lower output and an unfavorable vessel mix, third-quarter gross margin rose 0.2 percentage points quarter on quarter to 17.1%. JPMorgan believes this is consistent with continued revenue recognition from higher-priced orders, indicating that contract profitability is continuing to improve.
Customer payments also supported cash flow: third-quarter operating cash flow reached 11 billion yuan, up 297% quarter on quarter; free cash flow was 9.6 billion yuan, up 402% quarter on quarter. As of the end of September, contract liabilities had risen 6% from the end of 2025 to 161.3 billion yuan, supported by payments received at shipbuilding milestones.

Clarksons’ latest schedule indicates that fourth-quarter commercial vessel deliveries are expected to rise 49% quarter on quarter in compensated gross tonnage. The share of liquefied natural gas carriers is expected to rise from 7% in the third quarter to 18%, and that of container ships from 13% to 16%.
JPMorgan expects a higher share of LNG carriers, which have higher gross margins, a seasonal recovery in output and fixed-cost dilution to drive revenue up 42% quarter on quarter to 56.3 billion yuan; the fading of the third quarter’s exceptional tax burden will also help profit recover. The bank expects fourth-quarter net profit attributable to shareholders to rise 88% quarter on quarter to 6.5 billion yuan, with net margin increasing to 11.6%, 0.4 percentage points above the first quarter of 2026. Execution of the delivery schedule is key to this forecast.

JPMorgan cut its 2026 net profit forecast by 5% to 20 billion yuan, while raising its 2027 and 2028 forecasts by 1% and 4%, respectively, to 28.7 billion yuan and 36.8 billion yuan, respectively 4% and 12% above market consensus.
The bank expects deliveries measured in compensated gross tonnage to grow only modestly in 2027, so the 44% year-on-year increase in net profit will mainly come from higher profit per vessel: high-priced orders secured since the second half of 2023 are gradually contributing profit, while standardized construction and automation help reduce unit costs.
Large gantry cranes allow larger ship sections to be assembled before entering dry dock, shortening dock occupancy time. Jiangnan Shipyard’s 1600-tonne gantry crane has been delivered, while new gantry cranes for Waigaoqiao and other shipyards are scheduled for delivery before the end of 2026.
JPMorgan maintained its Overweight rating and lowered its price target from 52 yuan to 51 yuan, equivalent to 10.5 times forecast 2028 earnings. The valuation discount reflects uncertainty over whether new orders will continue and sentiment toward the shipbuilding cycle; existing orders support earnings for the next several years.