Yangzijiang Shipbuilding - OCBC Investment 2018-08-08: All Aboard!

Yangzijiang Shipbuilding - OCBC Investment Research 2018-08-08: All Aboard! YANGZIJIANG SHIPBLDG HLDGS LTD SGX:BS6

Yangzijiang Shipbuilding - All Aboard!

  • Strong 2Q18 results.
  • To hit US$1.8b 2018F new order target.
  • Opening new capacity in Taicang.

Solid set of 2Q18 results

  • Yangzijiang Shipbuilding (YZJ) delivered a 110% y-o-y rise in revenue to RMB7.96b and a 38% increase in net profit to RMB994.9m in 2Q18, such that 1H18 net profit accounted for about 65% of ours and the street’s full year estimates, higher than expectations.
  • The strong showing in revenue was due to the delivery of 20 vessels in 2Q18, compared to just four in 2Q17. There was also the delivery of larger- sized vessels this quarter.
  • After delivering 29 vessels in 1H18, the group is on track to meet its target of 54 vessels for this year.

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To hit full year new order target; high yard utilisation rates

  • YTD, the group has secured new orders worth about US$0.98b and we believe it is likely to hit its full year target of US$1.8b by the end of this year.
  • YZJ has an outstanding order book of US$4.1b which should keep its yard facilities at a healthy utilisation rate up to 2020. Indeed, management mentioned that there is a lack of newbuilding slots at its new YZJ and Xinfu yards now, and the group is selective in accepting orders. In fact, YZJ is thinking of opening new capacity in the Taicang yard going forward.

Weaker RMB in YZJ’s favour

  • Though steel prices are elevated due to government policies focused on
    1. cutting overcapacity and
    2. tighter environmental controls, 
    the recent RMB depreciation is in YZJ’s favour.
  • Looking ahead, management sees a gradual recovery in the shipbuilding market, with the potential for higher margins in the bulker segment. However, enquiries for gas carriers have been few as work has gone to Korean yards which have more available yard slots and earlier delivery dates.

Higher Fair Value of S$1.23

  • After giving up much of the share price gains in 2017, the stock recently traded to as low as S$0.85 in mid Jul. Compared to this trough, the stock is now up about 7% based on the closing price of S$0.91 on 7 Aug. The stock is currently trading at undemanding valuations and we see further upside from here.
  • Meanwhile, we tweak our estimates to account for the better-than-expected results and our SOTP-based fair value estimate rises from S$1.18 to S$1.23.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2018-08-08
SGX Stock Analyst Report BUY Maintain BUY 1.23 Up 1.180