Thursday, 7 August 2014

Yangzijiang Shipbuilding

UOBKayhian on 7 Aug 2014

Yangzijiang Shipbuilding’s 2Q14 net profit surged 54% yoy, above expectations. Revenue declined 3% yoy on fewer vessels delivered, while shipbuilding margin remained at a healthy 22%. HTM investment continued to play a key part of pre-tax profit. One-off interest income of Rmb130m from restricted cash and one-off tax refund of Rmb349m boosted earnings. Maintain BUY. Target price: S$1.39.

Shipbuilding margin to see an upswing. Despite most of the deliveries in 1H14 were vessels secured in 2010-11 at low margins, YZJ managed to maintain a healthy shipbuilding margin of 22% in 2Q14. We believe gross margins for orders secured in 2014 would be at a higher 25-30%, thanks to a non-stop decline in ship plate prices.We expect gross margins to rise from 2014 onwards and therefore, its earnings cycle should have bottomed in 2013.

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