Yangzijiang Shipbuilding - OCBC Investment 2016-02-29: 4.5 S cents dividend for FY15

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YANGZIJIANG SHIPBLDG HLDGS LTD BS6.SI 

Yangzijiang Shipbuilding: 4.5 S cents dividend for FY15 

• 4Q15 hit by impairments 
• Weaker shipbuilding outlook 
• Lower FV to S$1.06 

 Jumping onto the impairments bandwagon 

• Yangzijiang Shipbuilding (YZJ) reported a 17% YoY fall in revenue to RMB3.1b and a 93% drop in net profit to RMB41.5m in 4Q15, bringing full year net profit to RMB2.5b. 
• There were several one-off items in 4Q15, which included 
  1. RMB361m impairment loss due to lower vessel valuations because of the low Baltic Dry Index, 
  2. RMB95m impairment for held-to-maturity assets, and 
  3. RMB369m impairment for the only jack-up rig that it has built. 
  Excluding these three key items, we estimate core net profit of about RMB830m in 4Q15, higher than RMB636m in 4Q14. 

 Core shipbuilding continues to deliver 

• Core shipbuilding operations remained healthy, with gross profit margin for the shipbuilding related segment high at 25% in 4Q15, as the group wrote back certain warranty provisions which supported margins; excluding this, gross profit margin was still healthy at about 20%. 
• As for YZJ’s held-to-maturity assets, it decreased from RMB10.75b in 2Q15 to RMB 9.74b in 3Q15, before inching up slightly to RMB9.98b in 4Q15. 

 4.5 S cents dividend for FY15 vs. 5.5 S cents in FY14 

• YZJ has declared a final dividend of 4.5 S cents for FY15, compared to 5.5 S cents in FY14. 
• Management has always guided for a 25-30% dividend payout, but given the one off items in 4Q15, the group’s dividend payout exceeded the normal range and was 32%. 
• Management strives to offer shareholders a yield of around 4-5%, depending on the current share price. 

 Lower FV; but still see upside potential 

• For FY15, YZJ secured 37 effective shipbuilding contracts worth US$2.25b, compared to US$1.8b in 2014. 
• Though the group hopes to secure new orders worth US$2.5b in 2016, this could be at the expense of margins as the outlook for shipbuilding remains weak – the BDI reached its lowest level ever on 10 Feb 2016 at 290 points. 
• We tweak our earnings estimates given the weak industry outlook, and our fair value estimate drops from $1.38 to S$1.06. But given the upside potential of 17% (includes dividends), we maintain our BUY rating on the stock.

Low Pei Han CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-02-29

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 1.06 Down 1.38