No surprises in 4QFY12 results; lower GP margins in-line with expectations. 4QFY12 net  profit  of  RMB808m  (-8% q-o-q,  -22%  y-o-y)  boosted  FY12  net  profit  to  RMB3.58bn (-10%  y-o-y),  in-line  with  ours and  consensus  estimates.  4QFY12  shipbuilding  revenue fell to RMB3.2bn (-35% y-o-y) while investment and micro financing revenue rose +22% y-o-y and  +6%  y-o-y  respectively.  12  vessels  were  delivered  in  4QFY12  vs.  14  vessels  in 4QFY11. 4QFY12 shipbuilding gross margin was 24.1% compared to 26.2% in 4QFY11. In our view, shipbuilding gross margin is set to decline further as newer orders secured have lower margins given intense competition.

Order book implies 1.6x book-to-bill ratio. Yangzijiang has an order book of USD3.37bn for 64 vessels (39 containerships and 25 bulk carriers). We estimate 32% (USD1.06bn) of the  order  book  came  from  orders  for  11  units  of  10,000  TEU  containerships.  Yangzijiang should be able to maintain a high shipbuilding revenue level in 2013 but we see downside risk to FY14 revenue if they fail to secure at least USD2bn orders in 2013. The company is in talks with Seaspan to firm up more new orders. So far, 11 firm orders have been placed.

Earnings set to drop further as we expect margins to decline. We keep our FY13F net profit  estimate  unchanged.  In  our  model,  we  have  factored  in  conservative  shipbuilding gross margin of 20.1% and 16.0% in FY13-14F respectively as we expect margins on new orders to be significantly lower than the margins achieved in the past three years.

Valuation: Maintain Neutral with a TP of SGD0.95. We value Yangzijiang using sum-of-the-parts (SOTP): i) shipbuilding earnings at 8xFY13F P/E; ii) adjust for end-FY13 balance sheet items i.e. net debt and financial assets. At our TP, the stock is valued at 6.5x FY13F P/E and 8.0x FY14F P/E.

Source: OSK