Yangzijiang Shipbuilding (YZJ) reported a 1% YoY drop in revenue to RMB3.6b and a 14% fall in net profit to RMB877m in 3Q12, such that 9M12 revenue and net profit accounted for 72.5% and 73.3% of our full year estimates. Commercial shipbuilding remains challenging and according to the group, consolidation in the industry is now affecting mid-sized and large-sized yards. In our view, YZJ has performed well in a very challenging environment, and we appreciate management’s desire to diversify its income sources and build an integrated marine group. However, the dearth of new orders is likely to persist longer than we expected. We tweak our earnings estimates lower and roll forward our valuations, and based on 7x FY13F core earnings, our fair value estimate slips from S$1.03 to S$0.95. Maintain HOLD.
3Q12 results in line
Yangzijiang Shipbuilding (YZJ) reported a 1% YoY drop in revenue to RMB3.6b and a 14% fall in net profit to RMB877m in 3Q12, such that 9M12 revenue and net profit accounted for 72.5% and 73.3% of our full year estimates. Results were in line with expectations, with gross profit margin in the shipbuilding segment lower at 22.9% in 3Q12 vs 24.2% in 2Q12 and 27.7% in 3Q11. Recall that eight shipbuilding contracts were ceased in 1H12, affecting the original delivery schedule. As such, YZJ delivered only nine vessels in 3Q12 vs 19 vessels in 3Q11.
Orders have been few and far between; recovery beyond 2013
Commercial shipbuilding remains challenging and according to the group, consolidation in the industry is now affecting mid-sized and large-sized yards. Management updated that they have seen very few orders in the market, but this is not necessarily a bad thing for the over-supplied industry. Too many orders would just delay the eventual recovery, which management does not see happening in 2013 and maybe even 2014.
Performance is good in challenging environment
There was no vessel cessation and no effective orders secured in 3Q12. As such, YZJ’s order book stood at 75 vessels with a total value of US$3.6b as at 30 Sep 2012, of which 40% comprises orders secured pre-crisis (higher margins than newer orders). In our view, YZJ has performed well in a very challenging environment, and we appreciate management’s desire to diversify its income sources and build an integrated marine group. However, the dearth of new orders is likely to persist longer than we expected. We tweak our earnings estimates lower and roll forward our valuations, and based on 7x FY13F core earnings, our fair value estimate slips from S$1.03 to S$0.95. Maintain HOLD.
Yangzijiang Shipbuilding (YZJ) reported a 1% YoY drop in revenue to RMB3.6b and a 14% fall in net profit to RMB877m in 3Q12, such that 9M12 revenue and net profit accounted for 72.5% and 73.3% of our full year estimates. Results were in line with expectations, with gross profit margin in the shipbuilding segment lower at 22.9% in 3Q12 vs 24.2% in 2Q12 and 27.7% in 3Q11. Recall that eight shipbuilding contracts were ceased in 1H12, affecting the original delivery schedule. As such, YZJ delivered only nine vessels in 3Q12 vs 19 vessels in 3Q11.
Orders have been few and far between; recovery beyond 2013
Commercial shipbuilding remains challenging and according to the group, consolidation in the industry is now affecting mid-sized and large-sized yards. Management updated that they have seen very few orders in the market, but this is not necessarily a bad thing for the over-supplied industry. Too many orders would just delay the eventual recovery, which management does not see happening in 2013 and maybe even 2014.
Performance is good in challenging environment
There was no vessel cessation and no effective orders secured in 3Q12. As such, YZJ’s order book stood at 75 vessels with a total value of US$3.6b as at 30 Sep 2012, of which 40% comprises orders secured pre-crisis (higher margins than newer orders). In our view, YZJ has performed well in a very challenging environment, and we appreciate management’s desire to diversify its income sources and build an integrated marine group. However, the dearth of new orders is likely to persist longer than we expected. We tweak our earnings estimates lower and roll forward our valuations, and based on 7x FY13F core earnings, our fair value estimate slips from S$1.03 to S$0.95. Maintain HOLD.
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