Yangzijiang Shipbuilding - OCBC Investment 2015-11-04: Upgrade On Evaluation

Yangzijiang Shipbuilding - OCBC Investment 2015-11-04: Upgrade On Evaluation YANGZIJIANG SHIPBLDG HLDGS LTD BS6.SI 

Yangzijiang Shipbuilding - UPGRADE ON VALUATIONS 

  • Still a steady ship 
  • Stock has corrected 
  • Upgrade to BUY 

3Q15 results in line 

  • Yangzijiang Shipbuilding (YZJ) reported a 10% YoY rise in revenue to RMB4.1b but saw a 16% fall in net profit to RMB680.7m in 3Q15, such that 9M15 net profit comprised 75% and 79% of ours and the street’s full year estimates, in line with expectations. 
  • Nine vessels were delivered in 3Q15 according to schedule, higher than the eight vessels delivered in 3Q14. 
  • Gross margin for shipbuilding, however, was slightly lower at 18.5% for 3Q15 vs. 21.1% in 3Q14. 

Secures US$730m new orders; keeping US$2b target 

  • Since the 2Q15 results announcement on 4 Aug, a total of 12 new shipbuilding orders worth US$730m became effective, which is not surprising given management’s new focus on securing orders to fill up yard capacity rather than just chasing margins. 
  • Still, management asserts that the group will not accept any loss-making orders. After securing about US$1.54b new orders so far, YZJ is still confident about its US$2b new order target for this year. 

Continues to focus on core shipbuilding 

  • Meanwhile, the group has decreased its holdings in the held-tomaturity assets segment further from RMB10.75b in 2Q15 to RMB 9.74b in 3Q15. Management intends to pare exposure in this segment, in line with its strategy to focus on its core shipbuilding business. 
  • Still, the oversupply situation for containerships and dry bulkers is expected to continue, and YZJ is also circumspect in its strategy, given the weak global economic growth which would affect the shipping business and hence new build orders. 

Upgrade on valuations 

  • Since our downgrade to Hold on 5 Aug, YZJ’s stock fell from S$1.315 to a trough of S$1.03 before recovering to close at S$1.26 yesterday. Rolling forward to FY16 earnings and updating our sum-of-parts valuation, our fair value estimate rises slightly from S$1.36 to S$1.38. 
  • As we now see an upside of ~13.8% (includes dividends) at current levels, we upgrade the stock to BUY.

Low Pei Han CFA OCBC Securities | http://www.ocbcresearch.com/ 2015-11-04
OCBC Securities SGX Stock Analyst Report BUY Upgrade HOLD 1.38 1.36