Secured contract to build four 260,000DWT VLOC, its largest ever bulk carrier contract.

Value estimated at USD275m, bringing YTD order win to about USD1.35b.

Maintain HOLD, SOTP-based TP of SGD1.19.

What’s New

Yangzijiang has secured a contract to build four 260,000DWT very large ore carriers (VLOC) for an Australia-based ore company listed on the Australian Securities Exchange. This is Yangzijiang’s largest ever bulk carrier to be built. Delivery is scheduled from 2016 to 2017, but the identity of the customer and price of the contract was not disclosed.

What’s Our View

We believe that the customer is Fortescue Metals Group who announced on 16 Jun that it had signed a contract with a Chinese shipyard for four VLOCs valued at USD275m. Delivery dates as disclosed by Fortescue are from Nov 2016 to May 2017.

This contract win came as a positive surprise and would bump up Yangzijiang’s YTD order win to about USD1.35b, approaching our full-year forecast of USD1.5b. We may need to review our order win assumption if current momentum continues.

We maintain our HOLD call on the company with SOTP-based TP of SGD1.19. We believe the recovery for the Chinese shipbuilding sector would be mild in 2014 as vessel and yard overcapacity issues are unresolved. The alleged misdeeds involving the chairman’s investment vehicle could be an added near-term overhang. We are also concerned about its HTM investments as default risks in China seem to have increased following several bond defaults. The company added that it intends to gradually reduce its HTM investments in this contract win announcement.

Source: Maybank Kim Eng Research - 19 Jun 2014