YANGZIJIANG SHIPBLDG HLDGS LTD (SGX:BS6)
Yangzijiang Shipbuilding - 1H21 Net Profit Better Than Expected With Margin Expansion To Come
- Although revenue fell 20% y-o-y, Yangzijiang Shipbuilding’s net profit rose 40% y-o-y to RMB1.6b as a result of completion of prior lower-margin orders, a write-back of impairments and higher other income. 1H21 shipbuilding gross-profit margins were low at 14% but we expect margin expansion to occur going forward as Yangzijiang Shipbuilding starts to construct its higher-margin containership orders.
- We upgrade Yangzijiang Shipbuilding's 2021-23 earnings by 4-7% and maintain our BUY rating. Target price: S$2.00 (previously S$1.90).
YANGZIJIANG's 1H21 RESULTS
Profit up 39% y-o-y.
- Yangzijiang Shipbuilding (SGX:BS6) reported a 20% decline in 1H21 revenue as its shipyard capacity was not fully utilised in 2020; thus, there was a knock-on effect in 1H21. In addition, its held-to-maturity assets saw lower income y-o-y. The company reported a write-back of impairments previously classified as doubtful, and coupled with higher dividend income from financial assets and fair value gains, NPAT rose 40% y-o-y to RMB1.6b and above our estimates. No dividend was declared.
- Positive guidance: During the analyst briefing, Yangzijiang Shipbuilding’s management stated that 1H21’s gross profit margin of 14% for the shipbuilding business is expected to be “the lowest point” and that margins will start to increase from here as it will commence building higher-margin orders in 2H21. The low shipbuilding margin for 2Q21 resulted from the company building low-margin orders from 2019 as well as the impact of higher steel costs. However, Yangzijiang Shipbuilding expects steel-plate margins to stay at current high levels and does not expect any further meaningful increases.
STOCK IMPACT
- Shipping business did well in 1H21 as global bulk carrier charter rates proved to be stronger on a y-o-y basis. As a result of the strong charter that from hereon, Yangzijiang Shipbuilding will cease reporting quarterly earnings and move towards half-yearly and annual reporting of its results.
EARNINGS REVISION / RISK
- Earnings upgrades. We have upgraded our earnings forecast for Yangzijiang Shipbuilding's 2021-23 by 4-6% to take into risks around the temporary closure of Yangzijiang Shipbuilding’s yards. Note that around 99.2% of Yangzijiang Shipbuilding’s shipyard workers are fully vaccinated.
VALUATION / RECOMMENDATION
- Maintain BUY and raise Yangzijiang Shipbuilding's target price to S$2.00 (+5.2% from S$1.90 previously). Our PE-based Yangzijiang Shipbuilding would trade at a P/B of 1x which we think is fair.
- See
- Looks inexpensive. We continue to believe that Yangzijiang Shipbuilding equates to 54% of Yangzijiang's share price.
SHARE PRICE CATALYST
- Safe and efficient execution of orderbook and margin expansion.
- New orders in higher margin segments, eg dual-fuel containerships or LPG tankers.
Adrian LOH
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-08-10
SGX Stock
Analyst Report
2.00
UP
1.900
