Yangzijiang Shipbuilding (YZJ) reported a 13% YoY rise in revenue to RMB3.9b but saw a 9% fall in net profit to RMB878.2m in 2Q12, such that 1H12 net profit accounted for 50.2% and 51.8% of ours and the street’s full year estimates. 15 vessels were delivered according to schedule in 2Q12, and the group also entered into new contracts to build eight vessels worth US$159m in the quarter. However, the new order wins of US$295.1m YTD is far from its earlier US$2-2.5b order target and YZJ is also contending with order cancellations in the meantime. The Chinese shipbuilding industry is still in the midst of a down cycle and the absence of a sustained recovery in freight rates means that order flow is expected to be slow for yards. As sector sentiment is weak and is expected to remain so for the foreseeable future, we maintain our HOLD rating with S$1.08 fair value estimate.
2Q12 results in line
Yangzijiang Shipbuilding (YZJ) reported a 13% YoY rise in revenue to RMB3.9b but saw a 9% fall in net profit to RMB878.2m in 2Q12, such that 1H12 net profit accounted for 50.2% and 51.8% of ours and the street’s full year estimates. Excluding income from its financing business, the shipbuilding segment saw an increase in gross profit margin from 22.1% in 2Q11 to 24.2% in 2Q12, though slightly lower compared to 26.4% in 1Q12.
Smooth execution with new contracts…
15 vessels were delivered according to schedule in 2Q12, and the group also entered into new deals to build eight vessels worth US$159m in the quarter. Out of the six 1,100 TEU containerships, four are buyer options which are valid till 2013.
… but still far from earlier US$2- US$2.5b order target
Recall that YZJ was earlier looking at a new order target of US$2b- US$2.5b for this year. However, the group has clinched only 11 effective contracts YTD worth US$295.1m, and it looks increasingly probable that the Seaspan orders may take a longer time to materialize.
More order cancellations too
After the order cancellations of two 34,000 DWT bulk carriers (highlighted in our 21 Jun 2012 report), YZJ also ceased contracts for another six 82,000 DWT bulk carriers. Out of the eight vessels, three have been re-sold while potential buyers are being sourced for the remaining units.
Environment remains challenging
YZJ’s order book stood at US$3.81b as at 30 Jun 2012 vs US$4.5b as at 31 Mar 2012. Its share price has dropped by about 18% since we downgraded the stock on 27 Apr 2012, compared to the STI’s 2.1% rise. The Chinese shipbuilding industry is still in the midst of a down cycle and the absence of a sustained recovery in freight rates means that order flow is expected to be slow for yards. As sector sentiment is weak and is expected to remain so for the foreseeable future, we maintain our HOLD rating with S$1.08 fair value estimate.
Yangzijiang Shipbuilding (YZJ) reported a 13% YoY rise in revenue to RMB3.9b but saw a 9% fall in net profit to RMB878.2m in 2Q12, such that 1H12 net profit accounted for 50.2% and 51.8% of ours and the street’s full year estimates. Excluding income from its financing business, the shipbuilding segment saw an increase in gross profit margin from 22.1% in 2Q11 to 24.2% in 2Q12, though slightly lower compared to 26.4% in 1Q12.
Smooth execution with new contracts…
15 vessels were delivered according to schedule in 2Q12, and the group also entered into new deals to build eight vessels worth US$159m in the quarter. Out of the six 1,100 TEU containerships, four are buyer options which are valid till 2013.
… but still far from earlier US$2- US$2.5b order target
Recall that YZJ was earlier looking at a new order target of US$2b- US$2.5b for this year. However, the group has clinched only 11 effective contracts YTD worth US$295.1m, and it looks increasingly probable that the Seaspan orders may take a longer time to materialize.
More order cancellations too
After the order cancellations of two 34,000 DWT bulk carriers (highlighted in our 21 Jun 2012 report), YZJ also ceased contracts for another six 82,000 DWT bulk carriers. Out of the eight vessels, three have been re-sold while potential buyers are being sourced for the remaining units.
Environment remains challenging
YZJ’s order book stood at US$3.81b as at 30 Jun 2012 vs US$4.5b as at 31 Mar 2012. Its share price has dropped by about 18% since we downgraded the stock on 27 Apr 2012, compared to the STI’s 2.1% rise. The Chinese shipbuilding industry is still in the midst of a down cycle and the absence of a sustained recovery in freight rates means that order flow is expected to be slow for yards. As sector sentiment is weak and is expected to remain so for the foreseeable future, we maintain our HOLD rating with S$1.08 fair value estimate.
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