Yangzijiang - RHB Invest 2015-11-05: In a Stronger Position To Face Tough Times

Yangzijiang - RHB Invest 2015-11-05: In a Stronger Position To Face Tough Times YANGZIJIANG SHIPBLDG HLDGS LTD BS6.SI 

Yangzijiang - In a Stronger Position To Face Tough Times

  • Yangzijiang’s (YZJ) 3Q15 PATMI missed, marred by mostly non-cash accounting losses. 
  • Maintain BUY with a SOP-derived TP of SGD1.61 (from SGD1.68, 28% upside). 
  • The company also announced USD730m of new orders, which included two VLGCs amid 10 containership orders, bringing the orderbook to a 5-quarter high of USD4.8bn. 
  • We continue to like Yangzijiang for its industry leadership position in technology, low cost structure and undemanding valuations. 

 Large subsidy offset by high quanta of accounting losses. 

  • This quarter, YZJ recorded CNY557m of subsidies related to yard relocation compensation from the Government. These were offset by CNY207m losses from the disposal of A-shares (but actually sold at cost as profits were recorded in 2Q15), c.CNY150m losses from currency hedges, c.CNY130m losses from translating USD-denominated debt and a CNY100m loss from the disposal of Hengyuan Real Estate. 
  • Revenue was 28% lower QoQ due to normal fluctuations in S-curve recognition. 

 Currency losses to be recovered via higher margins. 

  • The forex-related losses in 3Q15 were all derived from USD debt and currency hedges targeted at reducing long-term currency exposure. As a result of the USD strengthening against the CNY, the shipbuilding margin expanded to 18.5% from 14.8% in 2Q15. At the core level, earnings have not changed much on a QoQ basis. 

 Stronger position to face tough times. 

  • YZJ’s net gearing has fallen to 0.02x as of 3Q15, and its orderbook is back to a 5-quarter high of USD4.8bn. 
  • Clouding the horizon is an Asian and European slowdown, according to chairman Mr Ren Yuanlin, which is negative for shipbuilding orders. 
  • YZJ continues to target large containership orders and naturalgas vessels like the very large gas carriers (VLGCs) secured this quarter, each for USD75m. 
  • Our TP is slightly lowered to SGD1.61 (from SGD1.68) as we trim earnings forecasts by 7%/5%/13% for FY15-17F, and lower the shipbuilding multiple to 6x from 7x in our SOP. 
  • Nonetheless, we continue to like YZJ for being the industry leader in technology and its c.1x P/BV and 3x EV/EBITDA.

Lee Yue Jer CFA RHB Research | http://www.rhbinvest.com.sg/ 2015-11-05
RHB Research SGX Stock Analyst Report BUY Maintain BUY 1.61 Down 1.68