Yangzijiang Shipbuilding (YZJ) reported a 48% YoY fall in revenue to RMB2.99b and a 60% drop in net profit to RMB 415.4m in 2Q16. Stripping out one-off items, we estimate core net profit declined 41% YoY to RMB 453m in the quarter, such that 1H16 core net profit accounted for only 38% of our full year estimates, below expectations.

1H16 total net profit represented 39% and 37% of ours and the street’s full year estimates, respectively. Three shipbuilding orders were terminated in 2Q16, all of which production has not started yet.

On a more positive note, seven out of the eight orders that were terminated in 1Q16 and one out of the two orders terminated in 2015 found new buyers in the quarter. For the remaining two orders, construction has not commenced. Pending an analyst briefing later, we put our buy rating and fair value estimate of S$1.04 under review.

Source: OCBC Research - 5 Aug 2016