• Results within expectations
• Prolonged COVID-19 a key risk
• Outstanding order book of US$2.9b

Flattish Net Profit in FY19; Within Expectations

Yangzijiang Shipbuilding (YZJ) reported a 2% rise in revenue and a 1% increase in net profit to FY19, which was in line with our expectations. This was despite a challenging shipbuilding market in 2019. Amidst US-China trade tensions and the IMO rules on sulphur emissions, most of the shipowners cut or postponed their investment in new vessels.

Outstanding Order Book of US$2.9b

In 2019, the group secured new orders for 21 vessels worth a total of US$830m, such that its outstanding order book stood at US$2.9b as at end 2019. This will keep the group’s yard facilities at a healthy utilization rate up to 2021 and provide a stable revenue stream for at least the next 1.5 years. YTD, YZH has secured new contracts for four vessels worth US$104m.

Impact of COVID-19

The group’s January operations were not impacted by COVID-19 as yard utilization is normally low due to Chinese New Year celebrations. However, restrictions imposed by the local government for returning sub-contractors have resulted in a workforce level of only about 30% in February, and the impact may continue to be felt in March. It is estimated that at least 80% of the workforce has to return by March for the group to hit its target delivery of 51 vessels this year.

Meanwhile, there are also delays in the shipbuilding supply chain across the region. We adjust our estimates lower to factor in more conservative assumptions. For this year, the group still targets US$2b of new orders, seeing good demand for large containerships, but we currently assume US$1.3b of new order wins.

4.5 S Cents Dividend in FY19

YZJ has declared a final dividend per share of 4.5 S cents for FY19, compared to 5.0 S cents for FY18. Looking ahead, a key risk is a prolonged impact from COVID-19, impacting shipbuilding production. Taking this into account and the correspondingly weaker economic outlook, we adjust our sum-ofthe-parts based fair value estimate from S$1.39 to S$1.20.

Source: OCBC Research - 2 Mar 2020