Towards Financial Freedom
YANGZIJIANG SHIPBUILDING - Results within expectations
Maintain Neutral. Yangzijiang (YZJ)'s 2Q12 net profit of RMB878m (-14% QoQ, -9% YoY) was within expectations. 1H12 net profit of RMB1.9b (-1% YoY) was 51-53% of ours and consensus estimates. We maintain FY12-14F EPS estimates and SOTP-derived TP at S$1.04. Maintain Neutral on YZJ: (1) P/E valuation appears undemanding at 5.3x FY12F but comes with -16% EPS CAGR over FY11-14F; (2) shipbuilding outlook remains challenging as customers are placing fewer orders due to poor freight ratesand oversupply in the market.
Results supported by pre-crisis orders. 2Q12 revenue rose +7% QoQ, +13% YoY driven by higher shipbuilding work (+8% QoQ, +14% YoY). YZJ delivered 15 vessels in 2Q12, up from 12 deliveredin 2Q11. The revenue also included RMB123m revenue from ship demolition. Shipbuilding gross margins remain strong at 24% up from 22% in 2Q12 but down marginally from the 26% achieved in 1Q12. Most of the orders executed were secured before the financial crisis. We have factored in FY12-13F gross margins of 21.4 and 15.4% respectively.
Depleting order book; facing tough years ahead. As of 30 Jun 2012, YZJ has a shipbuilding order book of US$3.8b (RMB24b) vs. US$5.5b in 2Q11. In 1H12, YZJ secured US$295.1m (RMB1.88b) new orders. We think the pace of new order win (US$49m/month) is weak as it is well below the current pace of order book billings (US$182m/month). Management is confident that Seaspan will exercise some of the options for the 10,000 TEU containerships but we believe prices may have to be adjusted downwards by around 15% to reflect current ship prices. There is downside risk to our US$2.5b order win forecast.
Other key takeaways: (1) Slowing down capacity expansion. Capex for Xinfu shipyard cut from RMB4b to RMB3b. (2) Management aims to seal the contracts for two jackup rigs by end of the year. The project is now in the design stage. (3) There were eight newbuildcontracts cancelled in 2Q12. Two 34,000DWT vessels were sold to an Asian buyer and one 82,000DWT to a European buyer. YZJ is looking for buyers for the remaining seven 82,000DWT vessels.
Source: OSK
Results supported by pre-crisis orders. 2Q12 revenue rose +7% QoQ, +13% YoY driven by higher shipbuilding work (+8% QoQ, +14% YoY). YZJ delivered 15 vessels in 2Q12, up from 12 deliveredin 2Q11. The revenue also included RMB123m revenue from ship demolition. Shipbuilding gross margins remain strong at 24% up from 22% in 2Q12 but down marginally from the 26% achieved in 1Q12. Most of the orders executed were secured before the financial crisis. We have factored in FY12-13F gross margins of 21.4 and 15.4% respectively.
Depleting order book; facing tough years ahead. As of 30 Jun 2012, YZJ has a shipbuilding order book of US$3.8b (RMB24b) vs. US$5.5b in 2Q11. In 1H12, YZJ secured US$295.1m (RMB1.88b) new orders. We think the pace of new order win (US$49m/month) is weak as it is well below the current pace of order book billings (US$182m/month). Management is confident that Seaspan will exercise some of the options for the 10,000 TEU containerships but we believe prices may have to be adjusted downwards by around 15% to reflect current ship prices. There is downside risk to our US$2.5b order win forecast.
Other key takeaways: (1) Slowing down capacity expansion. Capex for Xinfu shipyard cut from RMB4b to RMB3b. (2) Management aims to seal the contracts for two jackup rigs by end of the year. The project is now in the design stage. (3) There were eight newbuildcontracts cancelled in 2Q12. Two 34,000DWT vessels were sold to an Asian buyer and one 82,000DWT to a European buyer. YZJ is looking for buyers for the remaining seven 82,000DWT vessels.
Source: OSK
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