Hold S$0.94 ,
Staying on course
Price Target : 12-Month S$ 1.02
•2Q13 slightly above; 1H made up 52% of our full year forecast
•Order wins likely to beat expectations for this year
•Sustainable dividends; pegged to 5% of NTA
•Maintain HOLD, TP S$1.02
Margin dragged by other shipbuilding activities. Yangzijiang’s 2Q13 net profit of Rmb812m (-8% y-o-y; +13% q-o-q) was slightly ahead of our expectations of Rmb750m, driven by stronger revenue recognition. Revenue grew 12% y-o-y and 54% q-o-q to Rmb4.4bn. Shipbuilding gross margins, however, declined 3.6ppts y-o-y and 5.3ppts q-o-q to 20.6% as a result of a lower proportion of high margin contracts and higher contribution from the low-margin ship demolition and marine trading businesses. Stripping these out, newbuilding margins would have been 23%.
Orderbook may rise in 2H13. Orderbook stood at US$3.2bn as of end Jun 2013, translating to 1.7x book to bill ratio. With 47 options worth US$2.54bn on hand, the declining orderbook trend could reverse in the 2H. The company has secured US$1bn new orders YTD, and could potentially beat our expectations of US$2bn in view of the positive industry indicators such as low orderbook-to-fleet ratio of 18% and the BDI rebounding above 1,000 points.
Stable dividend per share. Yangzijiang has been paying out c.30% of net profit to reward shareholders, higher than its dividend payout policy of 20%. In view of the declining earnings trend these two years, management is considering to benchmark dividends against NTA and maintain the DPS of 4.5 Scents (equivalent to 5% of NTA). The 5% yield should encourage investors to hold on to the stock through the industry downturn.
Maintain HOLD; TP S$1.02. TP is unchanged at S$1.02, based on 1.1x FY13 P/BV. We believe Yangzijiang will be one of the winners after the sector consolidates. Maintain HOLD.
Publish date: 12/08/13