Simons Trading Research

Author: simonsg   |   Latest post: Fri, 23 Oct 2020, 8:51 AM


Yangzijiang Shipbuilding - Lifted by Recurring Gains

Author:   |    Publish date:

  • Although the 4Q18 beat was due to other gains, consensus earnings upgrade could sustain Yangzijiang Shipbuildings’s share price outperformance in the near term.
  • Management keeps its US$2bn order target for 2019 (2018 actual order was US$1.5bn), hoping to clinch more LNG carriers and tankers orders.
  • Maintain ADD with a higher SOP-based target price of S$1.61. Our FY19-20F EPS is up by 19% to account for higher margins and other income.

More Conservative Provisions for Contract Losses for Shipbuilding

  • YANGZIJIANG SHIPBUILDINGS HOLDINGS LTD (SGX:BS6) 4Q18 net profit of Rmb1.245bn beat consensus (S$580m) and our forecast (Rmb700m) due to other gains and income. FY18 net profit of Rmb3.623bn was 19% above our FY18F.
  • 4Q18 shipbuilding margin was 9% (9M18:20%) due to construction of larger size containerships and Rmb100m net provision for contract losses with revised assumptions of S$/Rmb at 6.50 and 10% growth p.a. in steel price and labour costs for two years.
  • Recall that in 4Q17, Yangzijiang Shipbuildings provided Rmb1.2bn of construction losses based on US$/Rmb of 6.16 and steel costs of Rmb4,700-4,800/tonne. At end-4Q18, the provision for construction losses stood at Rmb1.1bn YZJ reversed Rmb299m of provisions over FY18 yielding shipbuilding margin of 17.6% and we expect a similar trend in FY19.

Various Gains Worth Rmb780m With More to Come in FY19

  • Other income grew more than 300% q-o-q to Rmb494m helped by Rmb169m income from forfeiture of advances received, Rmb207m income from forfeiture of security guarantees (mainly for vessels contracts terminated in 2012-14) as well as Rmb90m of dividend income from financial assets. Other gains grew 21% q-o-q helped by forex gain of Rmb344m.
  • Yangzijiang Shipbuildings's admin expenses were 54% lower q-o-q with reversal of asset held-to-maturity (HTM) loss at Rmb190m in HTM and non-related parties’ microfinance. There was a further write-down of jack-up rig by US$38m (Rmb211m) to market value of US$72m.
  • There is Rmb300m of forfeiture advance that could be reversed in FY19. The adoption of SFRS 9 could also result in lower provisions in HTM impairment losses.

Net Net

  • Excluding the above, Yangzijiang Shipbuildings' 4Q18 net profit would have been at Rmb468m but we are less inclined to treat these as one-offs given their quarterly recurrence.
  • Yangzijiang Shipbuildings DPS of 5Scts (FY18: 4.5Scts) was a positive surprise.
  • The group delivered 11 vessels in 4Q18 (3Q18: 6) and targets to deliver 60 vessels (FY18: 46), of which 20+ units were those that were provided at zero margins. HTM income grew 26% q-o-q to Rmb459m, which helped to cushion the group’s gross margin at 18.2% (9M18: 18.5%).
  • Yangzijiang Shipbuildings secured 36 vessels with a total contract of US$1.5bn (vs. our target of US$1.8bn). Management keeps its US$2bn order target for 2019, expecting a better 2H19. No orders have been secured YTD.

Maintain ADD With a Higher Target Price of S$1.61

  • Key catalyst could come from LNG vessels from Japanese clients or stronger-than-expected margins.
  • Yangzijiang Shipbuildings is a safer pick vs. Singapore yards.
  • Trade war is a key risk.

Source: CGS-CIMB Research - 01 Mar 2019

Share this

Related Stocks

Chart Stock Name Last Change Volume 
YZJ Shipbldg SGD 0.965 +0.005 (0.52%) 14,907 

  Be the first to like this.

I3 Messenger
Individual or Group chat with anyone on I3investor

119  112  147  725 

Top 10 Active Counters
 Oceanus^ 0.007-0.001 
 Jiutian Chemical 0.082+0.004 
 Nico Steel^ 0.0010.00 
 Sembcorp Marine 0.129-0.003 
 Aspen 0.275+0.055 
 ThaiBev 0.585-0.005 
 Abundance Intl 0.038+0.002 
 Singapore-eDev 0.064+0.004 
 Medtecs Intl 1.21+0.04 
 SingTel 2.10-0.02