Fair value S$1.22
add: 12m dividend forecast S$0.04
versus: Current price S$1.20
Focusing on competitive strengths
Yangzijiang Shipbuilding (YZJ) reported a 2% YoY rise in revenue to RMB3.67b and a 6% decrease in net profit to RMB820.7m, such that both 9M13 revenue and net profit accounted for about 80% of our full year forecasts, slightly better than our expectations. Gross profit margin remained healthy at 29.6% in 3Q13 vs 29.4% in 3Q12. Despite an improving shipbuilding market, YZJ has limited capacity to take on new orders – its yard capacity will be highly utilized till 2016. The group has also decided to divert resources meant for O&M to its core shipbuilding business for now. This is likely to result in better execution and more vessel deliveries in 2014, raising our fair value estimate to S$1.22 (prev. S$1.04). Maintain HOLD.
3Q13 results slightly above
Yangzijiang Shipbuilding (YZJ) reported a 2% YoY rise in revenue to RMB3.67b and a 6% decrease in net profit to RMB820.7m, such that both 9M13 revenue and net profit accounted for about 80% of our full-year forecasts, slightly better than our expectations. Gross margin remained healthy at 29.6% in 3Q13 vs. 29.4% in 3Q12 and 27.5% in 2Q13, while administrative expenses were contained at about 2% of revenue in the quarter.
Improving market, but YZJ’s capacity is mostly full
As mentioned in our previous report, newbuild prices for bulk carriers in Chinese yards have improved. For YZJ, payment terms are also now 30-70 or 40-60 instead of the earlier 20-80. Despite an improving shipbuilding market, YZJ has limited capacity to take on new orders – its yard capacity will be highly utilized till 2016. Management has also admitted that it will be in YZJ’s best interest that some of the lower-priced options (among the 28 options that it has) are not exercised as it would prefer to take on new orders from the market that are priced higher.
Less focus on offshore & marine (O&M) for now
Instead of building the O&M arm (rig building) as an independent pillar, management has decided to combine it as part of the core shipbuilding segment as YZJ believes that the risk of entering this business now is too high, exacerbated by the low down-payments of less than 10% offered by certain Chinese yards. This seems to be a change in strategic direction for now; the more than 100 O&M engineers in YZJ will be deployed to support the mainstay shipbuilding business.
We favour YZJ’s decision to divert its resources meant for O&M and focus on its competitive strengths for now, while looking to develop its other business pillars. As such, we expect more vessels to be delivered in 2014 - raising our FY14F earnings estimates by about 11%. Maintain HOLD with S$1.22 fair value estimate (prev. S$1.04), based on 9x FY14F earnings.
Publish date: 13/11/13