Monday 29 April 2013

Yangzijiang Shipbuilding

OCBC on 26 Apr 2013

Yangzijiang Shipbuilding (YZJ) reported a 22% YoY fall in revenue to RMB2.9b and a 30% drop in net profit to RMB717.2m in 1Q13, accounting for 24% and 26% of our full year estimates, respectively. Results were in line with our expectations, and we note that gross profit margin from the shipyard operations remained healthy at 25.9%. Despite stiff competition in the shipbuilding industry, YZJ entered into eight new shipbuilding contracts worth US$237m recently, though margins are understandably low. Meanwhile, the group has affirmed its intention to further develop its financing business. With an order book of US$3.31b as at 26 Apr 2013, YZJ is in an enviable position amongst Chinese yards, but we do not see an industry upturn any time soon. Maintain HOLD with fair value estimate of S$0.95, based on 8x blended FY13/14F earnings.

Decent 1Q13 results
Yangzijiang Shipbuilding (YZJ) reported a 22% YoY fall in revenue to RMB2.9b and a 30% drop in net profit to RMB717.2m in 1Q13, accounting for 24% and 26% of our full year estimates, respectively. Results were in line with our expectations, and we note that gross profit margin from the shipyard operations remained healthy at 25.9% vs 26.4% in 1Q12 and 24.1% in 4Q12. Due to the difficult business climate faced by ship operators and an altered vessel delivery schedule with the cessation of previous orders, YZJ delivered nine vessels in 1Q13 vs 15 units in 1Q12. 

US$597m of new orders YTD
Despite stiff competition in the shipbuilding industry, YZJ entered into eight new shipbuilding contracts worth US$237m recently; this after it secured US$360m worth of new orders to build four units of 10,000 TEU containerships in Jan 2013 when Seaspan exercised its options. We are estimating single-digit gross profit margins for these contracts, as the Chinese shipbuilding industry has entered into a low-margin period which may last for at least the next 12-18 months. 

Intends to further develop its financing business
YZJ has increased the amount invested in held-to-maturity assets from RMB11.4b in 4Q12 to RMB11.6b in 1Q13, and management expects to increase its investments. In fact, the group has hired more people to further develop its quasi-bank business to support overall profitability of the group. 

Downtrend has stabilised but signs of upturn remain elusive
The group is seeing an increase in new order enquiry recently, and management believes “the downtrend has stabilised”. With an order book of US$3.31b as at 26 Apr 2013 (we estimate that 35 out of its 65 vessels in its order book command gross profit margins of at least 10%), YZJ is in an enviable position amongst Chinese yards, but we do not see an industry upturn any time soon. Maintain HOLD with fair value estimate of S$0.95, based on 8x blended FY13/14F earnings.

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