Monday, August 26, 2013

Yangzijiang Shipbuilding: VLGC orders for Chinese yards? (OCBC)

Yangzijiang Shipbuilding:
Fair value S$0.99
add: 12m dividend forecast S$0.04
versus: Current price S$0.935

VLGC orders for Chinese yards?
• Potential VLGC orders?
• YZJ’s expertise mainly in other areas
• Still weathering the storm well

According to Platts, a number of Chinese firms are seeking older VLGCs, as the country seeks to build its own VLGC fleet. There is talk that China Oriental Energy may look to order more VLGCs, with YZJ as a potential beneficiary, but we note that while the latter’s Xinfu yard has plans to build large vessels and has an annual production
capacity of up to 10 VLCCs, YZJ’s capabilities remain primarily in containerships and bulk carriers. As China seeks to reduce its shipbuilding capacity, what is imperative for YZJ is to continue its smooth execution, secure orders (albeit at almost breakeven levels), scale up the value chain by building green vessels and developing its offshore capabilities, while waiting for the industry consolidation to run its course. Should it be one of the few large yards left standing when the dust has settled, YZJ would then find itself in a stronger position than before. Maintain HOLD with S$0.99 fair value estimate.

China building up a VLGC fleet?
According to Platts , a number of Chinese firms are seeking older Very Large Gas Carriers (VLGCs). China does not have a VLGC fleet, but with imports expected to rise along with developments of several propane dehydrogenation plants, China may seek to cut costs by developing its own fleet for long-distance trips. For instance, China Oriental Energy (Donghua Energy) is building a 1.2m mt/year PDH plant for producing propylene at Zhangjiagang and is said to have placed orders for six VLGCs, with up to 16 options at a Chinese yard.
Potential orders for YZJ? But could be early days yet

Platts’s sources said that discussions between China Oriental Energy and Yangzijiang
Shipbuilding could be restarted, but a final agreement has yet to be reached. Meanwhile, we note that while YZJ’s Xinfu yard has plans to build large vessels and has an annual production capacity of up to 10 Very Large Crude Carriers (VLCCs), the group’s capabilities remain primarily in containerships and bulk carriers. Currently, China’s top VLCC yards are mainly held by China State Shipbuilding (CSSC) and China Shipbuilding Industry Corporation (CSIC), which are state-owned firms.

Aiming to be amongst the select few left standing
With more than 1,500 yards in China, YZJ’s CEO expects that more than half of the country’s yards will have to be closed down, and of the remainder, only 20% are likely to be profitable. In our view, what is imperative for YZJ is to continue its smooth execution, secure orders (albeit at almost breakeven levels), scale up the value chain by building green vessels and developing its offshore capabilities, while waiting for the industry consolidation to run its course. Should it be one of the few large yards left standing when the dust has settled, YZJ would then find itself in a stronger position than before. Maintain HOLD with S$0.99 fair value estimate.


Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date: 23/08/13

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