YANGZIJIANG SHIPBLDG HLDGS LTD
BS6.SI
Yangzijiang Shipbuilding - Still making money
- YZJ is relatively stronger than peers. It has cash, profits and valuation is cheap.
- 3Q16 NP of Rmb281m below our estimate and consensus due to higher tax charge. This would reverse in 4Q16 as YZJ obtained preferential tax status.
- But order momentum is slower at US$650m won YTD. Management guiding down 2016 target to US$1bn. We expect some new orders in the short-term.
- Working capital weakened with lesser orders and slower progressive payment. However YZJ’s balance sheet is stronger than peers as its net gearing is only at 6%.
- Management aims to keep DPS for FY16 at S$0.035-0.045, translating into 4.7-6%. Yield. Maintain Add with lower target price of S$0.91.
One offs and tax expense
- Notable one-offs in 3Q16 include:
- Rmb531m impairment for 13 owned and operated bulk carriers as value per ship fell from c.US$16m-17m in 2015 to US$13m-13.8m now,
- Rmb219m general provision made on c.Rmb900m in Huaxi, and
- Rmb434m income recognised from advanced payment due to cancelled contract.
- Tax expense had lower tax credit on impairment loss. New Yangzi yard has received the high-tech status and qualified for 15% preferential tax rate and we expect a reversal of c.Rmb130m by 4Q16.
Good execution, steady margins but cancellation risks remain
- Shipbuilding related gross margin improved qoq to 18% in line with higher number of vessels delivered (8 in 3Q16 vs. 7 in 2Q16). Six vessels were cancelled during the quarter. Work has not started for these vessels and YJZ has collected c.20% of deposits for the contracts.
Order outlook is a macro call
- YZJ has secured US$650m worth of new orders YTD, short of our target of US$1.8bn. It is now guiding to close 2016 with US$1bn with some contracts in the pipeline in the near term. We cut our order win assumptions to US$1.2bn in FY17 (previously US$1.8bn).
- Order momentum largely depends on the global and China economy. Order book stood at US$4.4.bn, comprising 44 containerships, 37 bulk carriers, two LNG carriers and two Very Large Gas Carriers (VLGC).
Working capital weakens but balance sheet solid
- Operating cashflow was negative Rmb487m as a result of lower order and slower progressive payment from customers. However, YZJ still has Rmb5.8bn of cash and net gearing at 6% to finance constructions ahead, in our view.
- Investment in HTM reduced slightly qoq to Rmb11bn from Rmb12bn. Average return of investments is now at about 8%, with longer tenure and government-linked notes.
Keep for dividend
- 9M16 NP was below at 62% of our FY16 forecast due to higher taxes. Our FY16-18F EPS forecasts are cut by 11-19% to reflect our cut in orders and lower subsidy income.
- We roll forward our target price to CY17, now based on 0.75x (previously 0.8x) P/BV in line with its ROE.
- Management is confident of paying dividend of S$0.035-0.045, which translates into a yield of 4.7-6%.
- Maintain Add.
- Key catalysts include stronger-than-expected order wins.
- Key risks include a major blow up in HTM investments.
Lim Siew Khee
CIMB Research
|
http://research.itradecimb.com/
2016-11-09
CIMB Research
SGX Stock
Analyst Report
0.91
Down
1.040
