Friday, December 6, 2013

Yangzijiang Shipbuilding : Full capacity (CIMB)

Yangzijiang Shipbuilding
Current S$1.15
Target S$1.30
Full capacity

YZJ’s yard will be full till 2015 and it is now filling up slots for 2016 delivery. The company has 30 options outstanding with clients worth US$1.48bn, some of which could be converted into orders in due time.

Meanwhile, we believe near-term catalysts are lacking in view of weaker quarterly earnings widely expected for FY14 as it executes lower-margin vessels. Our target price is intact, still at 1.4x FY14 P/BV (-1 s.d. of its 5-year mean). Maintain Hold.

When reality sets in
We believe an expected 13% yoy earnings decline in FY14 could be an overhang. Low-priced ship contracts signed at the bottom of the cycle (2010-12) could become a burden after YZJ delivered all its pre-GFC vessels by end-2013. Gross margins for shipbuilding are expected to slide from their 5-year average of 24% to 15-18%. We see downside risks for margin and order momentum for the Chinese yards on the back of (1) continuous appreciation of Rmb vs. the more stable KRW, and (2) labour costs rising 10% annually since 2010.

Offshore being sidelined
Management has decided to be less aggressive in developing its offshore business (jack-up rigs) as the risks are too high. We believe these could be related to its lack of proven technical competence. In addition, payment terms at its Chinese peers are too competitive (less than 10% deposits) for YZJ to match. YZJ is currently building one jack-up rig for delivery in 3Q15.

Net gearing rising
Excluding restricted cash (held in designated bank accounts as deposits for performance guarantees, letters of credits etc.), net gearing inched up to 0.46x in 3Q13. Operating cash also swung from Rmb1.4bn in 2Q13 to -Rmb1.8bn due to higher restricted cash required for refund guarantees on the back of its recent order momentum (US$1bn of new orders secured in 3Q13).

Order wins priced in
YZJ has clinched about US$2.6bn of new orders YTD. We keep our FY14 order-win target of US$2bn. The group still has 30 options outstanding worth a total of US$1.48bn; 11 options are containerships worth US$850m and 19 options are bulk carriers worth US$630m. We believe its share price already reflects this order outlook. Upside risks to our view include stronger-than-expected order wins in 2014-15.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 04/12/13

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