Yangzijiang Shipbuilding - CGS-CIMB Research 2020-08-05: Made Up For Lost Time


Yangzijiang Shipbuilding - Made Up For Lost Time

  • Yangzijiang Shipbuilding (SGX:BS6)'s 2Q20 net profit of Rmb773m (-17% y-o-y, +92% q-o-q) was in line with our expectations and consensus. 1H20 net profit (Rmb1.18bn) at 40% of FY20F.
  • Yard operations resumed fully since Apr. Shipbuilding GM jumped to 22% (1Q20: 9%), thanks to the resale of 157k dwt oil tanker previously cancelled.
  • New order wins at US$517m, in line with our US$1.1bn for 2020. Order book stood at US$2.6bn.

Catching up well

  • Yangzijiang Shipbuilding's core shipbuilding revenue grew 29% q-o-q to Rmb2.9bn with 16 vessels delivered (1Q: 12 vessels) which included four vessels from its JV yard, Yangzi-Mitsui Shipbuilding Co (YAMIC).
  • Yangzijiang Shipbuilding’s yard operations have resumed to full capacity since Apr and are on track to deliver the targeted 51 vessels for FY20. We should expect stronger q-o-q revenue in 3Q20, especially as the group has delivered a 12,600 TEU containership, the largest containership it has ever built.

Margin and taxes

  • The 157k dwt oil tanker that was cancelled in 1Q20 was resold in 2Q20. This has also caused shipbuilding gross margins to jump to 22% from 9% in 1Q20 and 18% in 2Q19. The effective tax rate remained high at 28.6% in 2Q20, higher than 21% in general, as Yangzijiang Shipbuilding adopted the 25% standard income tax rate instead of 15% preferential tax rate for the earnings of Jiangsu New Yangzi Shipbuilding due to fewer activities. We believe there could be some reversal in 2H20 as activities pick up.

YAMIC contributes to orders

  • Yangzijiang Shipbuilding won US$160m of new orders in 2Q20, bringing total order wins to US$517m as of 1H20. These new orders of 15 vessels included bulk carriers of various sizes (3x 82k dwt, 2x 56k dwt bulk carries, 2x 40k) as well as 2x 14k TEU containerships. Order book stood at US$2.6bn, comprising 62 vessels. YAMIC contributes to US$234m of its order book with 7 x 82k dwt bulk carriers and 1x 29.8k dwt self-loading carrier.
  • According to Yangzijiang Shipbuilding, it is ranked No. 2 in China and No. 7 in the world by outstanding order book. Its order book will keep its yard facilities at a healthy utilisation rate till early 2022 with revenue visibility of 1.5 years.

HTM balance generating higher returns

  • The assets held to maturity (HTM) balance rose c.Rmb538m q-o-q to Rmb16.05bn. Interest income derived from the investment segment increased 14% q-o-q and 10% y-o-y to Rmb578m on higher average interest rate earned from new investments.
  • Yangzijiang Shipbuilding's 1H20 annualised return of investment was c.14%, higher than its typical 8-10% currently.

Stock trades at 10-year trough

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-05
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