Yangzijiang Shipbuilding (YZJ) reported a 6% YoY rise in revenue to RMB5.0b but saw an 11% drop in net profit to RMB595m in 1Q18, such that the latter accounted for 23% of our full year estimate, in line with expectations. Shipbuilding margin was 17% in 1Q18 vs. 23% in 1Q17; excluding a RMB53m reversal of earlier provisions, shipbuilding margin would have been ~15.5%.

YTD, the group has secured new orders for nine vessels worth US$268m vs. US$2.1b for the whole of 2017. Four vessels were terminated in 1Q18, all of which construction has not started yet.

As at 31 Mar 2018, the group had an outstanding order book of US$4.5b for 121 vessels, which will keep its yards busy till 2020. However, as mentioned in our earlier reports, a good number of the vessels are challenged in terms of profitability.

Pending an analyst briefing later, our Hold rating and fair value estimate of S$1.34 are under review.

Source: OCBC Research - 27 Apr 2018