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
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http://www.rhbinvest.com.sg/
2015-11-05
RHB Research
SGX Stock
Analyst Report
1.61
Down
1.68
