Shipbuilding revenue continues to slide. Yangzijiang (YZJ) reported weaker1Q13 revenue of CNY2,867b (-22% YoY, -20% QoQ) and corresponding PATMI of CNY717m (-30% YoY, -11% QoQ), generally within market expectations. The weaker set of results was due primarily to a 26% YoY decline in shipbuilding revenue, mitigated partially by a 27% YoYrise in contribution from Held-to-maturity (HTM) investments.1Q13 saw cancellation of one additional shipbuilding contract bringing total number of cancellations to 5. YZJ now has three 2,500 TEU containerships for resale.Maintain Hold, TP of SGD0.93.

Margins were sustained but could trend lower. Shipbuilding gross margin was sustained at 26%,helped byitsorder intake discipline and lower raw material prices this quarter. However, as higher margin contracts get depleted from its orderbook, we foresee margins trending lowerfrom FY14F. Although YZJ believes that newbuild prices have bottomed, it is still too early to expect an uptrend in prices.

Subdued order win outlook. YTD order wins amounted to USD597m and outstanding orderbookstands at USD3.31b, comprising of 65 vessels. YZJ aims to deliver 42 of these vessels in FY13F. Managementalso sees afairly strong possibility that Seaspan would convert another 6-8 of its options which we estimate could add another USD480-640m to orderbook. YZJ may stand to benefit from the greater number of enquiriesfor eco-ships,given that it has developed a range of products under this category. We expect USD1.3b in new contract wins this year.

No near-term catalysts yet. We like YZJ for its well thought out strategy and strong financial position to combat the shipbuilding downturn. However, itstill needs to depend on non-core businesses to supplement weak shipbuilding business in the near-term. As shipping outlook remains subdued, there are no positive catalysts in sight.

Maintain Hold. We cut FY13-14F earnings by 4-8% as we adjust recognition schedule and also account for higher taxes. Maintain Hold with SOTP-based TP of SGD0.93.

Source: Maybank Kim Eng Research - 29 Apr 2013