Target Price: SGD1.50
Capitalising On Shipbuilding Recovery
YZJ is one of the leading private shipbuilders in China, specialising in dry bulk carriers and container ships. The company is well-positioned to grow its orderbook as global shipbuilding orders are recovering. We like YZJ for its strong execution record and balance sheet. Management is also seeking to diversify its earnings, which is positive over the longer term. Maintain BUY on YZJ, with a SOP-based TP of SGD1.50.
¨ Sector outlook improving. Yangzijiang Shipbuilding (YZJ) expects the shipbuilding sector outlook to remain challenging, as the sector is still undergoing a consolidation in China. However, several positives are emerging: i) prices have risen by 5-10% from six months ago, ii) payment terms (down payment and final payment upon delivery) have improved from 20:80 to 30:70 and 40:60 respectively, iii) weaker yards are forced to close due to zero orders or the inability to secure working capital financing, and iv) orders are flowing to state-owned yards and top private yards, which benefits YZJ.
¨ Positive on new orders. YZJ reported net orderbook of USD3.87bn (CNY23.6bn) for 88 vessels to be delivered over the next three years. The company won USD2.1bn new orders in YTD 2013 for 52 vessels, making it the highest annual order intake since 2007.
¨ Margins likely to fall as new orders have lower profits. YZJ’s 9M13 net profit of CNY2.35bn (-15% y-o-y) was above expectation, as gross margin (GP) for its shipbuilding segment remained strong at 22.5%, vs peers’ 5-15%. As more new orders will be recognised from here, we believe margins will fall as the newer orders will be won under more intense competition and likely to have lower profits.
¨ Reiterate BUY, SOP-based TP of SGD1.50. Our SOP is premised on: i) 12x FY14F shipbuilding earnings, ii) adjustments for cash and financial assets. Our TP reflects a 9.9x FY14F P/E.
Publish date: 23/12/13