Yangzijiang Shipbuilding - Strategic Review of Debt Investment

Date: 06/08/2021

Source  :  CIMB
Stock  :  YZJ Shipbldg SGD       Price Target  :  1.91      |      Price Call  :  BUY
        Last Price  :  0.95      |      Upside/Downside  :  +0.96 (101.05%)

  • Yangzijiang Shipbuilding said that it is conducting a preliminary strategic review of its debt investment portfolio to focus on shipbuilding. If spun off, it is a major catalyst.
  • Other gains helped Yangzijiang Shipbuilding beat our 2Q21 expectations. Net profit of S$877m (+38% q-o-q, +37% y-o-y) was higher than our S$680m-710m.
  • Order book solid at US$8.65bn. Maintain ADD on Yangzijiang Shipbuilding with unchanged target price of S$1.91. Outcome of strategic review of debt investment portfolio is a major catalyst.

Strategic Review of Debt Investment, More Disclosure

  • Yangzijiang Shipbuilding (SGX:BS6) changed its reporting format slightly to reflect segmental stomach the potential loss of recurring income of interest from debt investment (~50% of its gross profit). 2Q21 debt investments balance grew to RMB16.6bn (1Q21: RMB14.8bn), with interest income down 14% q-o-q to RMB417m.

Other Gains Helped the Beat, Offset by Higher Credit Cost

  • Yangzijiang Shipbuilding's 2Q21 net profit could be put up for sale in the quarters ahead, in our view.

Shipbuilding Margin Lower as Expected

  • On the back of rising steel costs and strengthening RMB/US$, shipbuilding gross margins were down q-o-q to 12.8% (1Q21: 14.7%) but better than our expectations of 10- 12%. Eleven vessels were delivered in 2Q21.
  • Maintain ADD and SOP-based target price of S$1.91.
  • Yangzijiang Shipbuilding secured US$6.67bn of new wins year-to-date with order book at US$8.65bn with 112 vessels on hand. Containerships make up ~80% of its order book at US$6.91bn. Yangzijiang Shipbuilding’s order book also includes 24 vessels worth US$822.7m to be built by associate, YAMIC.
  • Key risk: sharp decline in containership freight rates.

Source: CGS-CIMB Research - 6 Aug 2021

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YZJ Shipbldg SGD 0.95 -0.005 (0.52%) 9,512,500 

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