Yangzijiang Shipbuilding - OCBC Investment 2019-04-30: More Exciting Travels In 2020


Yangzijiang Shipbuilding - More Exciting Travels In 2020

  • Good results as expected.
  • New order market generally weak.
  • 2020 to be a stronger year.

YZJ's 1Q19 results in line

  • YANGZIJIANG SHIPBUILDING HOLDINGS LTD (SGX:BS6) delivered a 27% y-o-y rise in revenue to RMB6.3b and a 38% increase in net profit to RMB824m in 1Q19, such that the latter accounted for 27% and 26% of ours and the street’s full year estimates.
  • Results were within expectations. 15 vessels were delivered in 1Q19, vs. nine vessels delivered in 1Q18.

“Market still silent”

  • According to management, the market for new orders is “still silent”, and this mainly relates to the bulker and containership segments. The tanker market, in comparison, is relatively better, with enquiries for chemical tankers and crude oil tankers.
  • YTD, Yangzijiang Shipbuilding secured new orders for three vessels worth US$116m, and though there should be upcoming orders in 2Q19, we think there may be some difficulty for the group to achieve its new order target of US$2b by end 2019.

2020 to be a stronger year

  • That said, 2020 should be a much better year in terms of new orders, as ship owners who have been holding back (hence affecting 2019 new order flow) are likely to place new orders after they have more operational clarity relating to IMO’s sulphur content cap regulation which will be enforced from 2020. Ships will have to use marine fuels with a sulphur content of no more than 0.5% sulphur against the current limit of 3.5% to reduce sulphur oxide.
  • Meanwhile, management believes that risks relating to global economic growth and trade war tensions still exist and could also weigh on the pace of new orders.

Open to new orders at lower prices

  • As a reflection of the weak market, Yangzijiang Shipbuilding is now more open to accept new orders at lower prices, which may affect margins ahead assuming raw material prices, exchange rates and cost initiatives stay the same.
  • Meanwhile, Yangzijiang Shipbuilding had an outstanding order book of US$3.5b for 101 vessels as at 29 Apr, which will keep its yard facilities at a healthy utilisation rate up to 2021.
  • We fine tune our assumptions and our Fair Value estimate rises slightly from S$1.44 to S$1.45.

Low Pei Han CFA OCBC Investment Research | https://www.iocbc.com/ 2019-04-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.45 UP 1.440