Last one standing
1H13 core EPS is above our expectations and consensus at 54% of our FY13 forecast, thanks to strong shipbuilding revenue from the execution and delivery of high-value larger vessels. With US$1.1bn of orders secured YTD, YZJ is on track to meet its 2013 target of US$2.5bn while its non-state-owned peers are dropping like flies.
We upgrade our order-win target to US$2.5bn from US$800m and raise EPS by 22-45% for FY13-15. We have a higher target price of S$1.25, now based on 1.4x P/BV, -1SD of its 5-year mean on a better outlook (previously 30% discount to trough). Continuous orders in 2014 could swing its FY15 profits from yoy decline to growth, providing catalysts for our new Outperform rating (upgraded from Neutral).
2H13 to be equally strong
Shipbuilding revenue almost doubled qoq to Rmb4bn in 2Q13 from Rmb2.4bn in 1Q13, aided by the delivery of high-value larger vessels. 2H13 revenue could be equally strong as YZJ delivers another 27 vessels, six of which are larger vessels (1H13: 20 delivered with seven large vessels). Shipbuilding gross margins dipped to 20.6% (26% in 1Q13) but were still within our expected 20%. Revenue from held-to-maturity assets was Rmb361m (-3% qoq, +20% yoy) as investments increased to Rmb12.2bn (1Q13: Rmb11.6bn). However, returns from these investments are trending down to 10-12% from 12-15%.
Management hinted that margins could be better than the 5-10% guided in 1Q13 for new contracts with lower raw-material costs and fixed opex. We now expect FY14-15 gross margins of 17-18%.
Earnings growth in FY15?
We look forward to more orders in 2H13 as YZJ has US$2.54bn options for 47 vessels, likely to be exercised. These include >US$400m from Seaspan for at least five 10,000TEU containerships. Payment terms for new contracts are stable at 20/80. Enquiries are strong and if YZJ can secure more than US$2.5bn in 2014, its earnings could swing from -2% yoy to +1% in FY15. We conservatively forecast US$2bn of orders for FY14-15.
Publish date: 07/08/13