Yangzijiang Shipbuilding (YZJ) reported a 6% YoY drop in revenue to RMB3.88b but saw a 59% fall in net profit to RMB281m in 3Q16, impacted by a RMB531m impairment loss on PPE and other one-off items.

We estimate core net profit to be about RMB414m in the quarter, such that 9M16 recurring net profit accounted for 80% of our full year estimate, which we judge to be within expectations. Shipyard gross profit margin was relatively healthy at 18.1% in 3Q16 vs. 15.9% in 2Q16 and 16.6% in 3Q15.

Meanwhile, six shipbuilding orders were terminated while three new orders of 1900 TEU containerships were secured in 3Q16. Three of the six terminated orders have not started construction, and YZJ is seeking buyers for the remaining vessels.

Pending an analyst briefing, we maintain our HOLD rating but put our fair value estimate of S$0.81 under review.

Source: OCBC Research - 9 Nov 2016