Yangzijiang Shipbuilding reported a 12% YoY rise in revenue to RMB3.8b but a 15% fall in net profit to RMB636.6m in 4Q14; still, full year net profit of RMB3.48b was in line with ours (RMB3.47b) and the street’s expectations (Bloomberg cons: RMB3.35b). Gross margin for the shipbuilding business was 17.0% in 4Q14 vs. 19.9% in the preceding quarter. More cash was freed as the total amount of held-to-maturity assets continued to fall for a third consecutive quarter. However, the overall shipbuilding industry outlook remains weak and we lower our P/E for this segment from 9x to 8x, while increasing our P/B from 0.65x to 0.85x for the group’s HTM assets under our SOTP valuation. As such, our fair value estimate rises slightly from S$1.31 to S$1.33. Maintain BUY.
FY14 results in line
Yangzijiang Shipbuilding reported a 12% YoY rise in revenue to RMB3.8b but a 15% fall in net profit to RMB636.6m in 4Q14; still, full year net profit of RMB3.48b was in line with ours (RMB3.47b) and the street’s expectations (Bloomberg cons: RMB3.35b). Gross margin for the shipbuilding business was 17.0% in 4Q14 vs. 19.9% in the preceding quarter.
Continues to wind down HTM assets
Meanwhile the group’s held-to-maturity (HTM) assets fell from RMB12.6b in 3Q14 to RMB10.8b in 4Q14; this is the third consecutive quarter of decline and management plans to continue the reduction on a gradual basis. In 4Q14, an additional provision of RMB315m was made with regards to HTM assets in view of the weakening outlook of China’s real estate industry. According to management, the default rate for its HTM assets currently remains low at 1%.
Seeking growth in a challenging environment
Given the poor industry outlook, YZJ has received requests to defer deliveries for a few vessels, and management is likely to accede to them. For FY15, the group is hoping to secure new orders worth about US$2b vs. US$1.8b that was clinched last year. Management is also seeking to develop its LNG shipbuilding capabilities. Recently, YZJ secured two orders worth US$135m from a unit JACCAR Holdings (which owns EVERGAS) for two LNG carriers.
Upside of ~13%
Chinese banks are now trading at 1.1x FY15F P/B, and we increase our peg from 0.65x to 0.85x for the group’s HTM assets under our SOTP valuation. However, given that chances of a recovery in the commercial shipbuilding industry look lower with 1) the BDI hovering at record lows and 2) containerships still in an oversupply, we lower our P/E for this segment from 9x to 8x. As such, our fair value estimate rises only slightly from S$1.31 to S$1.33. Maintain BUY. Meanwhile, with more cash freed from HTM assets, the group has declared a dividend of 5.5 S cents for the year, compared to 5 S cents in FY13.
Yangzijiang Shipbuilding reported a 12% YoY rise in revenue to RMB3.8b but a 15% fall in net profit to RMB636.6m in 4Q14; still, full year net profit of RMB3.48b was in line with ours (RMB3.47b) and the street’s expectations (Bloomberg cons: RMB3.35b). Gross margin for the shipbuilding business was 17.0% in 4Q14 vs. 19.9% in the preceding quarter.
Continues to wind down HTM assets
Meanwhile the group’s held-to-maturity (HTM) assets fell from RMB12.6b in 3Q14 to RMB10.8b in 4Q14; this is the third consecutive quarter of decline and management plans to continue the reduction on a gradual basis. In 4Q14, an additional provision of RMB315m was made with regards to HTM assets in view of the weakening outlook of China’s real estate industry. According to management, the default rate for its HTM assets currently remains low at 1%.
Seeking growth in a challenging environment
Given the poor industry outlook, YZJ has received requests to defer deliveries for a few vessels, and management is likely to accede to them. For FY15, the group is hoping to secure new orders worth about US$2b vs. US$1.8b that was clinched last year. Management is also seeking to develop its LNG shipbuilding capabilities. Recently, YZJ secured two orders worth US$135m from a unit JACCAR Holdings (which owns EVERGAS) for two LNG carriers.
Upside of ~13%
Chinese banks are now trading at 1.1x FY15F P/B, and we increase our peg from 0.65x to 0.85x for the group’s HTM assets under our SOTP valuation. However, given that chances of a recovery in the commercial shipbuilding industry look lower with 1) the BDI hovering at record lows and 2) containerships still in an oversupply, we lower our P/E for this segment from 9x to 8x. As such, our fair value estimate rises only slightly from S$1.31 to S$1.33. Maintain BUY. Meanwhile, with more cash freed from HTM assets, the group has declared a dividend of 5.5 S cents for the year, compared to 5 S cents in FY13.
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