Yangzijiang Shipbuilding (YZJ) reported a 12% YoY fall in revenue and a 6% drop in net profit to RMB936.4m, such that 1H19 net profit accounted for 57% and 56% of ours and the street’s full year forecast; results were slightly better than expected. Global new shipbuilding orders declined substantially in 1H19 by 50% in DWT terms vs. 1H18, due to weaker economic and trade growth, and uncertainties related with the forthcoming IMO rules on emissions. During this period, YZJ secured new orders worth US$209m.

In 2Q19, the Baltic Dry Index recovered to healthier levels, aided by better fundamentals though we think it also reflects an upturn in demand as Brazil’s iron ore exports rose at a time when many vessels were out of service for maintenance.

Recall that iron ore supply was severely disrupted earlier this year owing to adverse weather in Australia and closure of mines in Brazil, which contributed to the slump in BDI in 1Q19.

Pending an analyst briefing, we maintain our HOLD rating but put our fair value estimate of S$1.45 under review.

Source: OCBC Research - 6 Aug 2019