- 3Q14 PATMI beat on strong shipbuilding revenue and margins. Raise FY14E EPS by 6%.
- Strong beneficiary of Chinese shipbuilding restructuring.
- Reiterate BUY with SOTP-based TP raised to SGD1.40 from SGD1.38. Catalysts from new shipbuilding orders.
3Q14 PATMI of CNY811.2m, down 1.2% YoY and 34.4% QoQ, beat expectations on strong shipbuilding revenue and margins. 9M14 PATMI rose 21.1% YoY to CNY2,846.4m, or 87% of our FY14E forecast and 94% of the market’s. Shipbuilding gross margins of 21% (2Q14: 24%, 1Q14: 24%) surprised us as we were looking for a steeper decline. This was credited to the delivery of its first batch of 10,000 TEU containerships secured at higher prices. We still expect margin declines in FY15E-16E on a depletion of high-priced contracts.
No new orders announced, but we stay optimistic
Our positive view is premised on a potential funnelling of shipbuilding orders to YZJ as weaker yards fail in the government’s push for capacity restructuring. While we are disappointed that there were no new orders in the quarter with a flat order win of USD1.4b, we remain optimistic. YZJ has four outstanding options for 10,000 TEU containerships with a value of c.USD320m. Improving shipping dynamics on lower oil prices may also trigger an order cycle. We predict USD2.0b of orders for FY14E.
Separately, YZJ’s disposal of stakes in several property businesses should be positive, allowing it to refocus on its core shipbuilding. Its main risk still lies in the realisable value of its HTM assets, but we believe that has been priced in. Lower margin forecasts for FY15E-16E due to the execution of lower-priced contracts. We see improving order momentum for shipbuilding as key stock catalyst.
We raise FY14E EPS by 6% to factor in its 3Q strength. Our SOTP TP rises from SGD1.38 to SGD1.40 accordingly. Reiterate BUY.
No comments:
Post a Comment