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Author: kimeng   |   Latest post: Fri, 15 Nov 2019, 2:29 PM

 

Yangzijiang Shipbuilding: Bobbing Up and Down

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  • Price correction
  • Bulkers and containers rather quiet
  • Tankers looking better

Price Correction Due to Softness in the Market

With recent market volatility, the share price of Yangzijiang Shipbuilding (YZJ) has moved fairly in line with the broader market, rising in April and coming off in May following the recent imposition of additional tariffs by the US on Chinese goods. With the recent market correction, the stock has fallen some 18.2% from the peak in April 2019 of S$1.65 to the recent low of S$1.35 in May 2019.

However, this is higher than the 9.1% decline experienced by the STI for the same period. Hence YZJ’s stock has been moving in a similar fashion to the market, though with a higher beta.

The group had announced its 1Q19 results in end Apr, and to recap, YZJ delivered a 27% YoY rise in revenue to RMB6.3b and a 38% increase in net profit to RMB824m in 1Q19, such that results were within expectations. 15 vessels were delivered in 1Q19, vs. nine vessels delivered in 1Q18.

Hoping for a Better 2020 in Terms of New Orders

Management had earlier updated that the market for new orders is “still silent”, and this mainly relates to the bulker and containership segments. The tanker market, in comparison, is relatively better, with enquiries for chemical tankers and crude oil tankers. That said, 2020 should be a much better year in terms of new orders, as ship owners who have been holding back (hence affecting 2019 new order flow) are likely to place new orders after they have more operational clarity relating to IMO’s sulphur content cap regulation which will be enforced from 2020.

Ships will have to use marine fuels with a sulphur content of no more than 0.5% sulphur against the current limit of 3.5% to reduce sulphur oxide. Meanwhile, management believes that risks relating to global economic growth and trade war tensions still exist and could also weigh on the pace of new orders.

As at end Apr, YZJ had an outstanding order book of US$3.5b for 101 vessels, which will keep its yard facilities at a healthy utilisation rate up to 2021. We maintain our fair value estimate of S$1.45.

Source: OCBC Research - 11 Jun 2019

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