YANGZIJIANG's (YZJ) Q2 2013 net profit fell 8 per cent y-o-y to 812 million yuan (S$167 million), mainly owing to shipbuilding margin shrinking from 24.2 per cent in Q2 2012 to 20.6 per cent in Q2 2013. Its H1 2013 net profit of 1.53 billion yuan made up 56 per cent of our forecast. In Q2 2013, the company's shipbuilding revenue rose 12 per cent y-o-y, or 63 per cent q-o-q, thanks to its recognition of larger vessels and higher contribution from its ship-breaking business (+61 per cent y-o-y) ...
Following the results, we raise FY2013-14 forecast EPS by 9 to 14 per cent on higher held-to-maturity (HTM) income. We believe YZJ will recover from the current downturn faster than its peers, given its industry-leading capabilities.
However, we are still "neutral" on the stock (target price: S$1.00) given the lack of catalysts, as new orders are likely to fetch lower margins while earnings momentum remains negative. We believe investors may like to see more proactive capital management on the company's part before becoming more positive on the stock.
NEUTRAL
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