Saturday, August 17, 2013

Yangzijiang Shipbuilding: Still a steady ship (OCBC)

Yangzijiang Shipbuilding:
Fair value S$0.99
add: 12m dividend forecast S$0.04
versus: Current price S$0.95

Still a steady ship
• Decent results
• Still securing orders
• Financing business still growing

Yangzijiang Shipbuilding (YZJ) reported a 12% YoY rise in revenue to RMB4.4b and a 8% decrease in net profit to RMB811.7m in 2Q13, such that 1H13 net profit accounted for about half of our full year estimates, within expectations.
Gross margin in the shipbuilding related segment dropped from 24.2% in 2Q12 and 25.9% in 1Q13 to 20.6% in 2Q13, while gross margin in the group’s investment division remained high. Despite stiff competition in the shipbuilding industry, YZJ secured 27 effective shipbuilding contracts worth about S$1.01b in 1H13, but likely at single digit gross margins. Meanwhile, the group continues to grow its financing business, which we now forecast greater revenue contributions. We increase our FY13/14F earnings by 3-4%, and with the more favorable RMB/SGD exchange rate, our fair value estimate increases from S$0.95 to S$0.99 (based on 8x FY13/14F core earnings). Maintain HOLD.

Steady 2Q13 results
Yangzijiang Shipbuilding (YZJ) reported a 12% YoY rise in revenue to RMB4.4b and a 8% decrease in net profit to RMB811.7m in 2Q13, such that 1H13 net profit accounted for about half of our full year estimates, within expectations. Gross margin in the shipbuilding related segment dropped from 24.2% in 2Q12 and 25.9% in 1Q13 to 20.6% in 2Q13, while gross margin in the group’s investment division remained high.

US$1.01b new orders as at end 1H13
Despite stiff competition in the shipbuilding industry, YZJ secured 27 effective shipbuilding contracts worth about S$1.01b in 1H13. In addition, four more options were exercised in Jul, valued at about US$103.7m. We are still estimating single-digit gross profit margins for these contracts, as the Chinese shipbuilding industry is currently in a low-margin period which may last for at least the next 12-18 months. On a brighter note, payment terms have not deteriorated compared to the last quarter, with 20% upfront payment and 80% upon delivery for YZJ.

Still banking on the financing business
YZJ continued to increase the amount invested in held-to-maturity assets from RMB11.4b in 4Q12 to RMB12.2b in 2Q13, and management reminds investors that this has been the reason why the group has been able to weather the shipbuilding crisis relatively better than peers.

Higher FV, but maintain HOLD
After delivering 11 vessels in 2Q13 and securing work in the quarter, YZJ’s order book stood at 71 vessels with a total value of US$3.24b as at end Jun 2013. The group is in an enviable position amongst Chinese yards, but we do not see an industry upturn any time soon. We tweak our estimates by increasing our FY13/14F earnings by 3-4% with higher revenue assumptions for the financing business, and with the more favorable RMB/SGD exchange rate, our fair value estimate increases from S$0.95 to S$0.99 (based on 8x FY13/14F core earnings). Maintain HOLD.



Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 12/08/13

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