Monday, August 12, 2013

Yangzijiang : Shipbuilding remains a tough business (NRA)

Yangzijiang - 2Q13 results review
Shipbuilding remains a tough business
Synopsis: Yangzijiang 2Q13 net profit dropped 6% yoy to RMB 808m due mainly to lower gross margins from its shipbuilding related business. However, revenues increase 12% yoy to RMB 4.4b as it delivered more larger vessels this quarter.

Yangzijiang 2Q13 net profit dropped 6% yoy to RMB 808m due mainly to lower gross margins from its shipbuilding related business.  However, revenues increased 12% yoy to RMB 4.4b as it delivered more larger vessels this quarter.


Key takeaways from the results briefing:
•2Q13 revenue increased 12% yoy to RMB 4.4b due mainly to delivery of large vessels in the quarter.
•Both segments saw increase in revenues, with shipbuilding segment increasing 12% yoy and investment segment increasing 14% yoy.
•Gross profit margins for shipbuilding related business dropped 3% pts due to the prolonged downturn in the shipping industry resulting in declining margins.
•On a positive note, the lower gross margins from shipbuilding is supplemented by its investment segment.
•Currently,  shipbuilding still major revenue stream making up 91% of 2Q13 total revenue with investment segment contributing the rest.
•Group will continue to invest in its investment segment in order to provide cushion against the industry downturn.
•Group expects shipping industry downturn to stretch beyond 2013.
•Group’s effort to control admin and finance costs managed to bring down overall expenses by 15% yoy.
•Secured 27 shipbuilding contracts worth US$1b in 1H13, with further 4 options converted into orders in July 2013. It has remaining 47 options worth US$2.5b to be converted.
•The group remains confident more options will be exercised in 2H13.
•Total outstanding order book of 71 vessels worth US$3.2b as of end 2Q13.
•Offshore expansion going as planned, with construction of its first jack-up rig to begin in August 2013 and delivery in mid 2015.

Valuation
The shipping industry remains depressed and will continue to be depressed in the medium-term in our view.  The oversupply of vessels and the low shipping rates have contributed to the competitive markets, which have compressed margins at shipyards.   However, Yangzijiang seems to be doing a good job of supplementing its bottom line with its investment income.

Yangzijiang is currently trading at 5.4x historical P/E, consensus is 6.2x P/E in FY13 and 8.1x P/E in FY14.   Our view is in line with management as the shipbuilding industry will remain depressed medium term.  We believe its current share price is fairly valued when compared to its 5 years average historical P/E of 7.3x . We think that it’s diversification into the offshore market will take at least another 2 to 3 years before it can meaningfully contribute to the group’s growth.


Source/Extract/Excerpts/来源/转贴/摘录: NRA-Research,
Publish date: 07/08/13

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