Yangzijiang Shipbuilding (YZJ) reported a 34% YoY rise in revenue to RMB5.7b but saw a 17% decline in PATMI to RMB1.0b, due to a lower gross profit margin of 15% vs. 24% in 2Q14 for the shipbuilding business; 2Q14 was also boosted by a one-off tax refund of RMB349m to the new Jiangsu yard. Excluding one-off items, 1H15 core net profit accounted for 51% of our full year estimates, in line with expectations. The group secured new shipbuilding contracts in Jul and Aug worth US$510m, adding to its outstanding order book of US$4.14b as at end 2Q15. However, we expect shipbuilding margins to be weak, and lower our earnings estimates for FY16. Along with lower valuations of Chinese banks, we also decrease our multiple for the held-to-maturity segment in our SOTP-based valuation. Downgrade to HOLD with lower fair value estimate of S$1.36.
2Q15 results in line
Yangzijiang Shipbuilding (YZJ) reported a 34% YoY rise in revenue to RMB5.7b but saw a 17% decline in PATMI to RMB1.0b, due to a lower gross profit margin of 15% vs. 24% in 2Q14 for the shipbuilding business; 2Q14 was also boosted by a one-off tax refund of RMB349m to the new Jiangsu yard. Excluding one-off items, 1H15 core net profit accounted for 51% of our full year estimates, in line with expectations.
Secures new orders worth US$510m
The group secured new shipbuilding contracts in Jul and Aug worth US$510m, adding to its outstanding order book of US$4.14b as at end 2Q15. YTD, the group has won US$810m of new orders, comprising 10 containerships, two LNG carriers, and two bulk carriers. Management is still sticking to its US$2b new order win target for this year, as it expects options of certain vessels to be exercised as well.
Reduces exposure to the property sector
As part of the strategy to reduce exposure to the real estate industry, YZJ recently disposed of its entire interest in Jiangsu Hengyuan Real Estate Development, leaving it only with one real estate project, which is the land development of residential buildings on the former shipyard in Jiangyin city. The one-off government compensation of RMB715m for yard relocation will be recognized as a gain in the next 12 months after risk of any potential government claim is removed. Meanwhile, investments in held-to-maturity financial assets decreased to RMB10.8b as at end 2Q15 compared to RMB11.7b in 1Q15.
Downgrade to HOLD
With the lower valuations that Chinese banks are now trading at, we decrease our multiple for the held-to-maturity segment from 0.95x to 0.8x, and also lower our multiple for the development property segment to be in line with peers. We also tweak our margin assumptions for FY16 lower, due to the weak market outlook. As such, our fair value estimate drops from S$1.54 to S$1.36. Downgrade to HOLD.
Yangzijiang Shipbuilding (YZJ) reported a 34% YoY rise in revenue to RMB5.7b but saw a 17% decline in PATMI to RMB1.0b, due to a lower gross profit margin of 15% vs. 24% in 2Q14 for the shipbuilding business; 2Q14 was also boosted by a one-off tax refund of RMB349m to the new Jiangsu yard. Excluding one-off items, 1H15 core net profit accounted for 51% of our full year estimates, in line with expectations.
Secures new orders worth US$510m
The group secured new shipbuilding contracts in Jul and Aug worth US$510m, adding to its outstanding order book of US$4.14b as at end 2Q15. YTD, the group has won US$810m of new orders, comprising 10 containerships, two LNG carriers, and two bulk carriers. Management is still sticking to its US$2b new order win target for this year, as it expects options of certain vessels to be exercised as well.
Reduces exposure to the property sector
As part of the strategy to reduce exposure to the real estate industry, YZJ recently disposed of its entire interest in Jiangsu Hengyuan Real Estate Development, leaving it only with one real estate project, which is the land development of residential buildings on the former shipyard in Jiangyin city. The one-off government compensation of RMB715m for yard relocation will be recognized as a gain in the next 12 months after risk of any potential government claim is removed. Meanwhile, investments in held-to-maturity financial assets decreased to RMB10.8b as at end 2Q15 compared to RMB11.7b in 1Q15.
Downgrade to HOLD
With the lower valuations that Chinese banks are now trading at, we decrease our multiple for the held-to-maturity segment from 0.95x to 0.8x, and also lower our multiple for the development property segment to be in line with peers. We also tweak our margin assumptions for FY16 lower, due to the weak market outlook. As such, our fair value estimate drops from S$1.54 to S$1.36. Downgrade to HOLD.
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