Tuesday, September 24, 2013

Yangzijiang Shipbuilding: Beating the odds

Yangzijiang Shipbuilding:
BUY S$1.065
STI : 3,214.25
Price Target : 12-Month S$ 1.32 (Prev S$ 1.22)

•Launching the first 10k TEU containership on schedule
•Raise FY14F earnings on better margins and order wins; FY15F earnings to benefit from property income
•Investment segment is well managed
•Best proxy to shipbuilding recovery in China; maintain BUY on higher TP of S$1.32

First 10k TEU containership on track.    Yangzijiang is hosting a yard visit on 25 Sept in conjunction with the launching ceremony of its first 10k TEU containership. Launching is the most important stage of construction, marking the birth of a new ship. All the blocks are mounted and joined, and the vessel should be ready to "float" at this stage. The on-track construction progress of Yangzijiang's first large containership is a confidence booster.

Raising the bar. The first batch of seven 10k TEU containership orders will likely yield better gross margins of 15-20% vs earlier expectation of low teens, in the light of favourable steel cost and forex as well as smooth execution.  As such, we are lifting FY14F shipbuilding gross margins by 2ppts to 18%.  We are also raising order win assumption for FY14 to US$2.5bn (from US$2bn), on the back of active shipbuilding enquiries and the sizeable US$2.87bn worth of options that could be exercised in the coming quarters. Taking these into account, our FY14F net profit is raised by 6.3% to Rmb2.2 bn. We have also introduced FY15 earnings and have incorporated property income from FY15.

Maintain BUY; SOTP-based TP raised to S$1.32.  We have changed our valuation methodology from price to book, to SOTP, to better reflect valuation for the various segments of shipbuilding, investment and property. While some investors have concerns regarding Yangzijiang's investment segment, it is a supplementary business for Yangzijiang and its weighting should fall as the shipbuilding segment recovers. Bad debts have been minimal with proper evaluation processes and risk management procedures in place. As one of the most cost efficient yards in China, Yangzijiang is the best proxy to the shipbuilding recovery.  Maintain BUY.

Source/Extract/Excerpts/来源/转贴/摘录: DBSV-Research,
Publish date: 24/09/13

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