Yangzijiang Shipbuilding - 1H21 Net Profit Better Than Expected With Margin Expansion to Come

Date: 10/08/2021

Source  :  UOB KayHian
Stock  :  YZJ Shipbldg SGD       Price Target  :  2.00      |      Price Call  :  BUY
        Last Price  :  0.95      |      Upside/Downside  :  +1.05 (110.53%)

  • Although revenue fell 20% y-o-y, Yangzijiang Shipbuilding’s net profit rose 40% y-o-y to RMB1.6b as a result of completion of prior lower-margin orders, a write-back of impairments and higher other income. 1H21 shipbuilding gross-profit margins were low at 14% but we expect margin expansion to occur going forward as Yangzijiang Shipbuilding starts to construct its higher-margin containership orders.
  • We upgrade Yangzijiang Shipbuilding's 2021-23 earnings by 4-7% and maintain our BUY rating. Target price: S$2.00 (previously S$1.90).


Profit up 39% y-o-y.

  • Yangzijiang Shipbuilding (SGX:BS6) reported a 20% decline in 1H21 revenue as its shipyard capacity was not fully utilised in 2020; thus, there was a knock-on effect in 1H21. In addition, its held-to-maturity assets saw lower income y-o-y. The company reported a write-back of impairments previously classified as doubtful, and coupled with higher dividend income from financial assets and fair value gains, NPAT rose 40% y-o-y to RMB1.6b and above our estimates. No dividend was declared.
  • Positive guidance: During the analyst briefing, Yangzijiang Shipbuilding’s management stated that 1H21’s gross profit margin of 14% for the shipbuilding business is expected to be “the lowest point” and that margins will start to increase from here as it will commence building higher-margin orders in 2H21. The low shipbuilding margin for 2Q21 resulted from the company building low-margin orders from 2019 as well as the impact of higher steel costs. However, Yangzijiang Shipbuilding expects steel-plate margins to stay at current high levels and does not expect any further meaningful increases.

Stock Impact

  • Shipping business did well in 1H21 as global bulk carrier charter rates proved to be stronger on a y-o-y basis. As a result of the strong charter that from hereon, Yangzijiang Shipbuilding will cease reporting quarterly earnings and move towards half-yearly and annual reporting of its results.

Earnings Revision / Risk

  • Earnings upgrades. We have upgraded our earnings forecast for Yangzijiang Shipbuilding's 2021-23 by 4-6% to take into risks around the temporary closure of Yangzijiang Shipbuilding’s yards. Note that around 99.2% of Yangzijiang Shipbuilding’s shipyard workers are fully vaccinated.

Valuation / Recommendation

  • Maintain BUY and raise Yangzijiang Shipbuilding's target price to S$2.00 (+5.2% from S$1.90 previously). Our PE-based Yangzijiang Shipbuilding would trade at a P/B of 1x which we think is fair.
  • Looks inexpensive. We continue to believe that Yangzijiang Shipbuilding equates to 54% of Yangzijiang's share price.

Share Price Catalyst

  • Safe and efficient execution of orderbook and margin expansion.
  • New orders in higher margin segments, eg dual-fuel containerships or LPG tankers.

Source: UOB Kay Hian Research - 10 Aug 2021

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Chart Stock Name Last Change Volume 
YZJ Shipbldg SGD 0.95 -0.005 (0.52%) 9,512,500 

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