Yangzijiang Shipbuilding said that it is conducting a preliminary strategic review of its debt investment portfolio to focus on shipbuilding. If spun off, it is a major catalyst.
Other gains helped Yangzijiang Shipbuilding beat our 2Q21 expectations. Net profit of S$877m (+38% q-o-q, +37% y-o-y) was higher than our S$680m-710m.
Order book solid at US$8.65bn. Maintain ADD on Yangzijiang Shipbuilding with unchanged target price of S$1.91. Outcome of strategic review of debt investment portfolio is a major catalyst.
Strategic Review of Debt Investment, More Disclosure
Yangzijiang Shipbuilding (SGX:BS6) changed its reporting format slightly to reflect segmental stomach the potential loss of recurring income of interest from debt investment (~50% of its gross profit). 2Q21 debt investments balance grew to RMB16.6bn (1Q21: RMB14.8bn), with interest income down 14% q-o-q to RMB417m.
Other Gains Helped the Beat, Offset by Higher Credit Cost
Yangzijiang Shipbuilding's 2Q21 net profit could be put up for sale in the quarters ahead, in our view.
Shipbuilding Margin Lower as Expected
On the back of rising steel costs and strengthening RMB/US$, shipbuilding gross margins were down q-o-q to 12.8% (1Q21: 14.7%) but better than our expectations of 10- 12%. Eleven vessels were delivered in 2Q21.
Maintain ADD and SOP-based target price of S$1.91.
Yangzijiang Shipbuilding secured US$6.67bn of new wins year-to-date with order book at US$8.65bn with 112 vessels on hand. Containerships make up ~80% of its order book at US$6.91bn. Yangzijiang Shipbuilding’s order book also includes 24 vessels worth US$822.7m to be built by associate, YAMIC.
Key risk: sharp decline in containership freight rates.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....