Yangzijiang Shipbuilding - Maybank Kim Eng 2015-11-04: Can’t Sail Against The Tide

YANGZIJIANG SHIPBLDG HLDGS LTD BS6.SI

Yangzijiang Shipbuilding - Can’t Sail Against The Tide

3Q15 ahead on higher shipbuilding gross margins due to strong USD. Several one-off losses offset by large government compensation. Raise FY15 EPS by 7% but cut FY16 by 19%.
Tough shipbuilding industry weighs on contract prices. Expect deeper margin deterioration.
Maintain SELL. SOTP TP unchanged at SGD1.12.

3Q15 PATMI of CNY680.7m (-16.1% YoY, -34.0% QoQ) is slightly ahead of our expectations on better shipbuilding gross margins of 18.5% (2Q15: 14.8%, 3Q14: 21.1%). The latter benefited from a stronger USD.
9M15 PATMI of CNY2,418.1m (-15.0% YoY) formed 82%/80% of our/consensus FY15E.
There were many one-offs in 3Q15: a CNY207m loss from the disposal of AFS assets (A-shares); a CNY101m loss from the disposal of its property investment; and forex items. These were offset by a CNY557m government compensation for the relocation of its old yard, which we had originally incorporated into our FY16 forecasts.

YTD order wins of USD1.63b fall short of its last guidance of USD2.0b by Sep 2015. This could be blamed on customer hesitation amid an uncertain shipping market and competitive price offers.
YZJ remains confident of reaching its USD2.0b target, though it admits that the shipbuilding outlook has gotten tougher.
What we see is weakening prices that validate our view of a more severe deterioration in its shipbuilding margins. This is reflected in our more-pessimistic FY17 net-profit forecast that is 24% below consensus despite 11% higher revenue.
Its new products, LNG/VLGC vessels, are also likely to yield lower margins. Default risks for its held-to-maturity assets are another concern, although it has trimmed its portfolio by CNY1.1b to CNY9.7b since 2Q.
We raise FY15 EPS by 7% but cut FY16 EPS by 19% for its one-offs.
Our SOTP TP stays at SGD1.12 after our rollover to FY16.

Yeak Chee Keong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-04

Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 1.12 Same 1.12