Friday, 8 August 2014

Yangzijiang Shipbuilding

Kim Eng on 6 Aug 2014

  • 2Q14 PATMI beat expectations on better revenue and margins.
  • Raise EPS on higher margin and order-win forecasts.
  • Upgrade to BUY from HOLD, with higher SOTP-based TP of SGD1.38.
Revenue and margin surprise
2Q14 PATMI of CNY1,236.0m (+52.3% YoY, +54.7% QoQ) beat expectations even after accounting for one-offs (CNY130m interest and CNY349m tax refund). The outperformance came from better revenue and margins. 1H14 PATMI formed 70% of our initial FY14E and 76% of consensus forecasts. Shipbuilding gross margins held up at 24.0% (1Q14: 24.0%, 2Q13: 27.4%), aided by the delivery of its first batch of 10,000 TEU containerships secured at higher prices. Margins are expected to decline over FY15E-16E.
Core shipbuilding outlook brighter than peers’
YZJ secured USD1.4b of orders in 1H14, close to our USD1.5b full-year forecast. It is optimistic on 2H14 but will focus on more sophisticated and larger products (eg 14,000 TEU containerships and LPG carriers). Despite our view on shipbuilding’s muted recovery this year, YZJ has secured contracts at the expense of its peers, thanks to its expertise, execution and balance-sheet strength. We raise FY14E/15E new-contract assumptions to USD2.1b/2.5b (from USD1.5b/2.4b) and shipbuilding-related gross margins by 1-2ppts.
YZJ said it would cap its investment portfolio at CNY13b, not much lower than FY13’s CNY14b. We remain concerned about HTM asset risks and believe their actual collateral value may be lower than the 2-3x coverage reported. Nevertheless, core shipbuilding strength should outweigh those risks, which have probably been priced in. We raise FY14E-16E EPS by 13-14%. Our SOTP-based TP rises from SGD1.19 to SGD1.38, as we now value its core shipyard business at 1.6x FY15E P/BV, its 5-year mean (from 1.3x, -1SD of mean), due to our more positive view. Upgrade to BUY.

No comments:

Post a Comment