Yangzijiang Shipbuilding (Holdings)

Few announcements on re-structuring of the company investments. It is mainly minor alignments.

(vested)

http://infopub.sgx.com/FileOpen/Announce...eID=362523

This is one of the two major property investments of the company. After the disposal, the only property development project is the old yard development. No significant impact on earning and net asset, since disposal is close to book value.

(vested)

----------
DISPOSAL OF THE ENTIRE 100% EQUITY INTEREST IN THE REGISTERED CAPITAL OF JIANGSU
HENGYUAN REAL ESTATE DEVELOPMENT CO., LTD AND ITS SUBSIDIARIES

http://infopub.sgx.com/FileOpen/Announce...eID=363351

Noone is spared from this fast and furious offshore downturn. Moreover it is quite common sense that Chinese operations is losing competitiveness against Korean and Japanese yards just on currency exchange rates alone. Chinese yards are not spared from rising labour costs across middle kingdom. Globally, the sudden downturn in commodities and oil prices has changed the whole paradigm in new vessels construction and repair businesses. It is quite logical that the spare capacities free up as a result of plunging capex will increase competition amongst the leaner and surviving yards. How come analysts have yet to flag that grim scenario and only wakes up post results announcements?

Maybank KE:

Yangzijiang Shipbuilding (YZJSGD SP)
More margin downside; D/G to SELL
 2Q15 net in line, but as expected shipbuilding gross margin
started to decline, dipping 6ppts QoQ to 14.8%.
 Change of strategy to focusing on winning new orders over
margins.Core FY16/17E EPS cut by 16/27% for lower margins.
 Lowering SOTP-based TP from SGD1.35 to SGD1.12. D/G to
contrarian SELL as we see further margin pressure.
What’s New
2Q15 PATMI of CNY1,030.6m (-16.6% YoY, +45.8% QoQ) lifted 1H15
PATMI to CNY1,737.5m (-14.6% YoY), forming 66%/58% of
our/consensus FY15F. Adjusting for other gains of CNY412.1m,
results were in line. Shipbuilding gross margin fell to 14.8% (1Q15:
20.8%, 2Q14: 24.4%). YZJ disposed of property company Jiangsu
Hengyuan for CNY1b, at a minor loss. It now has only one 50%-
owned real-estate company, Jiangsu Huaxi Yangzi, which is
involved in redeveloping its old yard into residential properties.
What’s Our View
YTD, it has secured USD880m of new orders vs YZJ’s target of
USD2b. We forecasted USD1.6b initially. But YZJ communicated a
new strategy to prioritise order wins over margins after losing out
recently to Korean and Japanese shipbuilders on prices. It expects
to achieve its USD2b target by Sep following this new strategy. We
raise our target to USD2.1b accordingly but now see further
pressure in shipbuilding gross margins.
For held-to-maturity assets, YZJ said it has stopped investing in
high-risk assets and it aims to reduce these to CNY10b by year-end.
But we believe it does not have a strong commitment to do so.
We raise FY15/16F EPS by 13/4% for one-off gains (added 2Q15
one-offs and CNY715m of gov’t compensation for FY16). But
FY16/17F core EPS are lowered by 16%/27% as we cut FY16/17F
shipbuilding gross margins from 15%/15% to 12%/11%. All in all, TP
cut from SGD1.35 to SGD1.12. We now value shipbuilding at 0.9x
P/BV, -1SD (from 1.3x at -0.5SD) on weaker prospects. Downgrade
to SELL from HOLD.

First property investment loss, next will be htm writedown, just wait and see.

sent from my Galaxy Tab S

(05-08-2015, 09:56 PM)BlueKelah Wrote: First property investment loss, next will be htm writedown, just wait and see.

sent from my Galaxy Tab S

Property investment loss? I have no trace of that in my record. Jiangsu Hengyuan sold due to re-org, and hardly any losses, IIRC. May be only transaction cost.

The old yard development should be very profitable. The cost (land+development) is about RMB 5K psm, base on Mr. Ren previously. Shanghai property price is easily few tenth of thousands psm.

(vested, and may be biased)

csfb maintain NEUTRAL:

● Yangzijiang’s 2Q15 net profit of Rmb1.03 bn was boosted by a
Rmb157 mn gain on disposal of financial assets, Rmb155 mn
forex gains, and Rmb124 mn subsidy income. Excluding these
gains, 2Q15 would be in line with consensus.
● Shipbuilding gross margin fell to 14.8% in 2Q15 from 20.8% in
1Q15, due to recognition of lower-margin contracts. Management
remains confident of achieving US$2.0 bn of new orders in 2015,
but this could be at lower gross margin.
● While held-to-maturity (HTM) assets decreased to Rmb10.8 bn in
2Q15 from Rmb11.7 bn in 1Q15, available-for-sale assets
increased further to Rmb1.4 bn in 2Q15 from Rmb1.0 bn in 1Q15.
Following the disposal of Hengyuan real estate for Rmb1.0 bn,
some proceeds could be deployed into HTM assets.
● We lower our shipbuilding gross margin assumption to 16-17% in
2016-17, which leads to a 11-12% decline in our EPS. Our target
price is reduced to S$1.30 (from S$1.50), based on 8x
shipbuilding earnings. Maintain NEUTRAL.

DBS maintain BUY:

Against all odds
 2Q15 results slightly above; shipbuilding gross
margin was low at 15% due to conservative
recognition for new projects
 Secured new orders worth US$510m in Jul-Aug
 Prime beneficiary of industry consolidation
 Reiterate BUY with 25% upside potential to our
S$1.62 TP plus 4-5% dividend yield
Highlights
2Q15 results slightly above. Yangzijiang reported 2Q15
PATMI of Rm1,031m (-7% y-o-y; +46% q-o-q), boosted by
subsidy income and gain on disposal of financial assets in the
quarter. This brings 1H15 PATMI to Rmb1,737m, making up
54% of our full year estimate (excl. old yard relocation fee).
The y-o-y decline in 2Q15 PATMI was attributable largely to
lower shipbuilding margins, and absence of Rmb349 tax
refund, partially offset by gain on disposal of financial assets
(Rmb158m) and subsidy income (Rmb124m).
Lower shipbuilding margins. Core shipbuilding gross margin
contracted 6ppts q-o-q to 14.8% due largely to prudent
recognition of new projects that hit initial recognition in 2Q,
especially for new vessel types like the 208dwt bulk carrier.
We expect margins to improve in 2H and average around 17%
for full year.
Sound balance sheet. Including Held-to-Maturity (HTM)
investments, Yangzjiang is in net cash, equivalent to 42 Scts
per share or 34% of its NTA.This bodes well for M&A
activities.
Outlook
New orders. Yangzijiang has secured new orders worth
US$510m in Jul-Aug, comprising four 9,700 TEU and four
3,800 TEU containerships; each comes with four options
totaling US$510m. This brings YTD wins to US$883m,
representing 44% of its US$2bn target. Nine existing orders,
primarily dry bulks, were changed to containerships, resulting
in an increase of US$25.4m to its orderbook.
Potential order pipeline includes 10k/14k TEU containerships,
LNG carriers, VLCC and tankers.
Orderbook stood at US$4.14bn as of end-Jun 2015 (excluding
orders won in Jul-Aug), translating into a healthy book-to-bill
of 1.8x.

GS maintain NEUTRAL:

Neutral Equity Research
Below expectations: Weak shipbuilding margins drive miss
What surprised us
YZJ reported 2Q15 operating profit of Rmb938mn (-13% yoy). 1H15 operating
profit of Rmb1.65bn (-19% yoy) was 45% / 47% of prior GS / Bloomberg
consensus FY15E – which we see as below expectations. 2Q15 highlights: 1)
Sales of Rmb5.7bn (+34% yoy) beat GSe, driven by higher-than-expected
trading sales (e.g. scrap metal sales) of Rmb1.4bn (+192% yoy), which is
lumpy in nature; 2) Gross margins of 18.0% (1Q15: 25.7%; prior GSe:
24.2%), however, disappointed given initial sales recognition of first time
projects (e.g. 208K dwt dry bulk) and higher-than-expected trading sales mix
(which has low GPM of 2%); 3) No new orders were secured during 2Q,
but YZJ has received US$510mn containership new orders during Jul-Aug.
While ytd new orders of US$0.9bn are tracking below GS FY15E of US$1.7bn
(company guidance: US$2bn), YZJ stated that it may turn more aggressive
and is now willing to secure orders at lower margins; 4) Customers
requested to modify 9 vessels in the existing orderbook (7 vessels
from dry bulk to containership and 2 vessels from large dry bulk to smaller dry
bulk) given weak dry bulk outlook, which overall resulted in slightly higher
orderbook of US$25mn but with limited impact on margins; 5) Trust loans
declined qoq to Rmb10.8bn (1Q15: Rmb11.7bn). YZJ maintains it guidance
of keeping trust loans below Rmb10bn by end-2015.
What to do with the stock
Maintain Neutral. We cut our 2015E-2017E EPS by 1%-6% to factor in lower
shipbuilding margins. Consequently, we revise our 12-m EV/GCI vs.
CROCI/WACC-based (cash return multiple of 0.7X unchanged) TP to S$1.40
(S$1.48 prior). Key risks: (1) stronger-/weaker-than-expected shipping
demand; (2) stronger-/weaker-than-expected competition.

I have done my half-year review, and would like to share few points on the company

During the good old years (from IPO, 2007-2010), the company non-investment biz, was generating good cash flow. Based on my records, average OCF exclude investment was close to 3 billion RMB annually. Mr. Ren has initiated the investment in full-force, around 2008, two year before the down-trend of shipping sector, to fully utilize the cash hoarded.

The bad years came after 2010, the cash flow was lumpy. Based on my record, average ONLY 500 million RMB was generated between 2011-2014. It was far below the annual dividend payout of close to 1 billion RMB. Due to foresight of Mr. Ren, the investment has generated an average cash flow of 1.2 billion in the same period. It was sufficient to pay the dividend, and to grow the NAV

How long further for the down cycle? I don't know. Is it possible for the company, back to the old good year? I reckon it will, since down-cycle will not sustain forever, and the company remains in good shape till to-date.

The NAV has grown from S$0.21 per share, at IPO year (2007), to S$1.14 per share in 2014, even after the annual payment of generous dividends.

Is the investment too risky for the company? Based on impairment record, during the period 2008-2014, the total write-off to-date, was 2.7 million RMB, for micro-finance, and nil for HTM. Yes, ONLY 2.7 million. Impairment allocations were made, but not utilized all the time, and be reversed.

All comments are welcomed.

(vested, and sharing few points on the company)

Nomura maintain BUY:

On track to achieve USD2bn of new orders
Results in line, balance sheet de-risking to continue
Action: Maintain Buy rating and target price of SGD1.70
Global Markets Research
Rating
Remains
Buy
Target price
Remains
SGD 1.70
Closing price
4 August 2015
SGD 1.32
Potential upside
+29.3%
Anchor themes
YZJ is the second-largest yard in China for building dry bulk carriers, and is making good inroads into the construction of 10K-TEU containerships. It is one of the most profitably run Asia-listed yards, and the yard has also built up one of the largest order books among Asian yards. We believe these provide good profit visibility.
Nomura vs consensus
Our FY15/16F core net profit estimates are 20%/36% above consensus.
Research analysts
Singapore Capital Goods
Wee Lee Chong - NSL
weelee.chong@nomura.com
+65 6433 6960
Abhishek Nigam - NSL
abhishek.nigam@nomura.com
+65 6433 6969
We maintain our Buy rating and target price of SGD1.70 for Yangzijiang (YZJ). Our TP is based on 1.2x forward P/B on blended FY15/16F BVPS of CNY6.4. Key catalysts for the stock according to us are: 1) continued balance sheet de-risking as affirmed by 2Q15 results, 2) our expectation of stronger order wins in 2H15F, and 3) the possible return of bulk carrier orders given the recent seasonal strength in BDI.
BDI at 1,200 level to catalyse dry bulk carrier orders in 2H15F
YZJ announced securing new orders worth USD510mn on 5 August 2015, along with 2Q15 results. Additionally, management guided that it remains confident about achieving its USD2bn of new order target even before the end of 2015. Total new orders secured YTD 2015 were at USD0.9bn and form 44% of our full-year new order target of USD2bn. BDI reached 1,200 on 4th August 2015 and we think such a seasonal rebound can catalyse dry bulk carrier orders in 2H15F.
Net profit in line with our above-consensus FY15F estimate
YZJ’s 1H15 net profit formed 49% of our and 58% of consensus FY15F estimates. Shipbuilding revenue received a strong boost during the quarter, up 12% y-y, mainly due to the addition of 11 vessel deliveries in 2Q15 (2Q14: 9 deliveries). Trading business revenue rose strongly to CNY1.4bn (2Q14: CNY0.5bn), but gross profit margins were a low 2%. Interest income from held-to-maturity (HTM) assets, too, received a solid boost to CNY412mn (2Q14: CNY315mn).
Balance sheet de-risking continues with HTM assets now at CNY10.8bn
YZJ’s HTM assets stood at CNY10.8bn at the end of 2Q15, down sharply by 8% from CNY11.7bn at end-1Q15. Management reiterated that the focus on de-risking the balance sheet remains.

OCBC downgraded to HOLD:

Can't beat the tide...

Cannot download details...

(06-08-2015, 09:43 AM)greengiraffe Wrote: csfb maintain NEUTRAL:

● Yangzijiang’s 2Q15 net profit of Rmb1.03 bn was boosted by a
Rmb157 mn gain on disposal of financial assets, Rmb155 mn
forex gains, and Rmb124 mn subsidy income. Excluding these
gains, 2Q15 would be in line with consensus.
● Shipbuilding gross margin fell to 14.8% in 2Q15 from 20.8% in
1Q15, due to recognition of lower-margin contracts. Management
remains confident of achieving US$2.0 bn of new orders in 2015,
but this could be at lower gross margin.
● While held-to-maturity (HTM) assets decreased to Rmb10.8 bn in
2Q15 from Rmb11.7 bn in 1Q15, available-for-sale assets
increased further to Rmb1.4 bn in 2Q15 from Rmb1.0 bn in 1Q15.
Following the disposal of Hengyuan real estate for Rmb1.0 bn,
some proceeds could be deployed into HTM assets.
● We lower our shipbuilding gross margin assumption to 16-17% in
2016-17, which leads to a 11-12% decline in our EPS. Our target
price is reduced to S$1.30 (from S$1.50), based on 8x
shipbuilding earnings. Maintain NEUTRAL.

DBS maintain BUY:

Against all odds
 2Q15 results slightly above; shipbuilding gross
margin was low at 15% due to conservative
recognition for new projects
 Secured new orders worth US$510m in Jul-Aug
 Prime beneficiary of industry consolidation
 Reiterate BUY with 25% upside potential to our
S$1.62 TP plus 4-5% dividend yield
Highlights
2Q15 results slightly above. Yangzijiang reported 2Q15
PATMI of Rm1,031m (-7% y-o-y; +46% q-o-q), boosted by
subsidy income and gain on disposal of financial assets in the
quarter. This brings 1H15 PATMI to Rmb1,737m, making up
54% of our full year estimate (excl. old yard relocation fee).
The y-o-y decline in 2Q15 PATMI was attributable largely to
lower shipbuilding margins, and absence of Rmb349 tax
refund, partially offset by gain on disposal of financial assets
(Rmb158m) and subsidy income (Rmb124m).
Lower shipbuilding margins. Core shipbuilding gross margin
contracted 6ppts q-o-q to 14.8% due largely to prudent
recognition of new projects that hit initial recognition in 2Q,
especially for new vessel types like the 208dwt bulk carrier.
We expect margins to improve in 2H and average around 17%
for full year.
Sound balance sheet. Including Held-to-Maturity (HTM)
investments, Yangzjiang is in net cash, equivalent to 42 Scts
per share or 34% of its NTA.This bodes well for M&A
activities.
Outlook
New orders. Yangzijiang has secured new orders worth
US$510m in Jul-Aug, comprising four 9,700 TEU and four
3,800 TEU containerships; each comes with four options
totaling US$510m. This brings YTD wins to US$883m,
representing 44% of its US$2bn target. Nine existing orders,
primarily dry bulks, were changed to containerships, resulting
in an increase of US$25.4m to its orderbook.
Potential order pipeline includes 10k/14k TEU containerships,
LNG carriers, VLCC and tankers.
Orderbook stood at US$4.14bn as of end-Jun 2015 (excluding
orders won in Jul-Aug), translating into a healthy book-to-bill
of 1.8x.

GS maintain NEUTRAL:

Neutral Equity Research
Below expectations: Weak shipbuilding margins drive miss
What surprised us
YZJ reported 2Q15 operating profit of Rmb938mn (-13% yoy). 1H15 operating
profit of Rmb1.65bn (-19% yoy) was 45% / 47% of prior GS / Bloomberg
consensus FY15E – which we see as below expectations. 2Q15 highlights: 1)
Sales of Rmb5.7bn (+34% yoy) beat GSe, driven by higher-than-expected
trading sales (e.g. scrap metal sales) of Rmb1.4bn (+192% yoy), which is
lumpy in nature; 2) Gross margins of 18.0% (1Q15: 25.7%; prior GSe:
24.2%), however, disappointed given initial sales recognition of first time
projects (e.g. 208K dwt dry bulk) and higher-than-expected trading sales mix
(which has low GPM of 2%); 3) No new orders were secured during 2Q,
but YZJ has received US$510mn containership new orders during Jul-Aug.
While ytd new orders of US$0.9bn are tracking below GS FY15E of US$1.7bn
(company guidance: US$2bn), YZJ stated that it may turn more aggressive
and is now willing to secure orders at lower margins; 4) Customers
requested to modify 9 vessels in the existing orderbook (7 vessels
from dry bulk to containership and 2 vessels from large dry bulk to smaller dry
bulk) given weak dry bulk outlook, which overall resulted in slightly higher
orderbook of US$25mn but with limited impact on margins; 5) Trust loans
declined qoq to Rmb10.8bn (1Q15: Rmb11.7bn). YZJ maintains it guidance
of keeping trust loans below Rmb10bn by end-2015.
What to do with the stock
Maintain Neutral. We cut our 2015E-2017E EPS by 1%-6% to factor in lower
shipbuilding margins. Consequently, we revise our 12-m EV/GCI vs.
CROCI/WACC-based (cash return multiple of 0.7X unchanged) TP to S$1.40
(S$1.48 prior). Key risks: (1) stronger-/weaker-than-expected shipping
demand; (2) stronger-/weaker-than-expected competition.

UBS maintain BUY:

Yangzijiang Shipbuilding (Holdings) Ltd.
Stronger H215, but margins on new orders weaker
H115 net profit of RMB1,737m was 54% of UBS 2015E (57% of consensus)
This was broadly on track to meet our 2015E estimates as we expect higher profits and
margins to be better in H215, driven by (1) Delivery of vessels and release of cost
contingencies no longer needed – which should translate into higher margins and (2)
~RMB400m income related to YZJ's early move out of its Old Yard. In Q215, revenue
was particularly high, due to trading revenue, which is low margin and volatile.
Order book outlook: Will accept lower margin orders
In our view, the most significant comment from Yangzijiang's result briefing this
morning was Chairman Ren Yuanlin's remarks that, in light of weak market conditions,
YZJ would accept "lower margin orders", in order to replenish order book. Stated that
this had been a new strategy since June, and YZJ has as a result been able to secure
new jobs: New orders in Jul-Aug 2015 for four 9,700TEU containerships and four
3800TEU containerships were secured for US$510m, boosting YTD order wins to
US$880m. YZJ seemed confident of achieving its target of US$2bn for the full year. If
this target is met, the company estimates that utilisation rates will be kept above 90%
through 2017.
Continued to make progress on exiting non-shipbuilding related businesses
Held to maturity products came to S$10.8bn; the company reaffirmed intention to
gradually redeploy capital away from non-shipbuilding related industries. Announced
the sale of its 100% entity Jiangsu Hengyuan Real Estate for RMB1bn, close to book
value. Capital freed up will be redeployed to cash or HTM products.
Valuation: Based on sum of parts
We use sum of parts method to value YZJ as we believe this is the best way to account
for the value of its shipbuilding business separately from the yield on its cash balances.
We use DCF on the shipbuilding business (COE: 11%) and 5x multiple on earnings from
its investment portfolio.

CIMB maintain HOLD:

Low margin is finally here
2Q15 net profit was slightly above our expectations and consensus. 1H15 net
profit accounted for 57% of our FY15 forecast, mainly due to c.Rmb426m
gains from the sale of investments, forex and subsidy. YZJ is sacrificing
margin to win orders. Current new orders are secured at 10% GP margin vs.
the historical average of 20%. Although order momentum could pick up in
3Q15 to hit the order target of US$2bn, the overall outlook is challenging with
stiff competition from Korean and Japanese yards. We up our FY15 EPS by
4% to reflect the strong quarter but cut FY16-17 EPS by 3-9% for lower
shipbuilding margins. We peg YZJ at 1.2x P/BV, in line with its average ROE
of 12%. YZJ remains a Hold. Re-rating catalysts include a rebound in order
momentum.
Sacrificing margin for orders
2Q15 core shipbuilding margin was 15%, down from 21% in 1Q15. Including
trading (GP margin of 2%), blended shipbuilding GP margin was 11%, down
from the historical 19-20% and below our 17% expectations. High-value
contracts have been exhausted and YZJ is in the phase of executing
lower-margin jobs. New contracts are also closed at c.10% GP margin.
2Q15 net profit lifted by gains; low risk of impairment of
Chinese stocks,
YZJ registered Rmb155m forex gains, Rmb157m gains on disposal of financial
assets as well as Rmb124m subsidy income. As YZJ has been making c.10%
provision for asset impairment against its HTM investments, the recent
weakness in Chinese equities did not have a major impact on its portfolio. Its
HTM investments balance declined to the 4Q14 level of c.Rmb10.7bn.
Challenging order outlook but US$2bn target remains
The outlook for dry bulk is weak but containerships are still seeing enquiries.
However, YZJ faces stiff competition from the Korean yards in pricing and
from Japanese yards given the country’s currency weakness. YZJ has clinched
c.US$880m of new orders YTD including US$510m secured in Jul and Aug 15
for eight container ships (4x 9,700 TEU and 4x 3,800 TEU). These contracts
came with US$510m worth of options. Management is bullish that its order
target of US$2bn can be achieved by 9M15. Order book is US$4.6bn YTD.

(06-08-2015, 11:32 AM)greengiraffe Wrote: Nomura maintain BUY:

On track to achieve USD2bn of new orders
Results in line, balance sheet de-risking to continue
Action: Maintain Buy rating and target price of SGD1.70
Global Markets Research
Rating
Remains
Buy
Target price
Remains
SGD 1.70
Closing price
4 August 2015
SGD 1.32
Potential upside
+29.3%
Anchor themes
YZJ is the second-largest yard in China for building dry bulk carriers, and is making good inroads into the construction of 10K-TEU containerships. It is one of the most profitably run Asia-listed yards, and the yard has also built up one of the largest order books among Asian yards. We believe these provide good profit visibility.
Nomura vs consensus
Our FY15/16F core net profit estimates are 20%/36% above consensus.
Research analysts
Singapore Capital Goods
Wee Lee Chong - NSL
weelee.chong@nomura.com
+65 6433 6960
Abhishek Nigam - NSL
abhishek.nigam@nomura.com
+65 6433 6969
We maintain our Buy rating and target price of SGD1.70 for Yangzijiang (YZJ). Our TP is based on 1.2x forward P/B on blended FY15/16F BVPS of CNY6.4. Key catalysts for the stock according to us are: 1) continued balance sheet de-risking as affirmed by 2Q15 results, 2) our expectation of stronger order wins in 2H15F, and 3) the possible return of bulk carrier orders given the recent seasonal strength in BDI.
BDI at 1,200 level to catalyse dry bulk carrier orders in 2H15F
YZJ announced securing new orders worth USD510mn on 5 August 2015, along with 2Q15 results. Additionally, management guided that it remains confident about achieving its USD2bn of new order target even before the end of 2015. Total new orders secured YTD 2015 were at USD0.9bn and form 44% of our full-year new order target of USD2bn. BDI reached 1,200 on 4th August 2015 and we think such a seasonal rebound can catalyse dry bulk carrier orders in 2H15F.
Net profit in line with our above-consensus FY15F estimate
YZJ’s 1H15 net profit formed 49% of our and 58% of consensus FY15F estimates. Shipbuilding revenue received a strong boost during the quarter, up 12% y-y, mainly due to the addition of 11 vessel deliveries in 2Q15 (2Q14: 9 deliveries). Trading business revenue rose strongly to CNY1.4bn (2Q14: CNY0.5bn), but gross profit margins were a low 2%. Interest income from held-to-maturity (HTM) assets, too, received a solid boost to CNY412mn (2Q14: CNY315mn).
Balance sheet de-risking continues with HTM assets now at CNY10.8bn
YZJ’s HTM assets stood at CNY10.8bn at the end of 2Q15, down sharply by 8% from CNY11.7bn at end-1Q15. Management reiterated that the focus on de-risking the balance sheet remains.

OCBC downgraded to HOLD:

Can't beat the tide...

Cannot download details...

(06-08-2015, 09:43 AM)greengiraffe Wrote: csfb maintain NEUTRAL:

● Yangzijiang’s 2Q15 net profit of Rmb1.03 bn was boosted by a
Rmb157 mn gain on disposal of financial assets, Rmb155 mn
forex gains, and Rmb124 mn subsidy income. Excluding these
gains, 2Q15 would be in line with consensus.
● Shipbuilding gross margin fell to 14.8% in 2Q15 from 20.8% in
1Q15, due to recognition of lower-margin contracts. Management
remains confident of achieving US$2.0 bn of new orders in 2015,
but this could be at lower gross margin.
● While held-to-maturity (HTM) assets decreased to Rmb10.8 bn in
2Q15 from Rmb11.7 bn in 1Q15, available-for-sale assets
increased further to Rmb1.4 bn in 2Q15 from Rmb1.0 bn in 1Q15.
Following the disposal of Hengyuan real estate for Rmb1.0 bn,
some proceeds could be deployed into HTM assets.
● We lower our shipbuilding gross margin assumption to 16-17% in
2016-17, which leads to a 11-12% decline in our EPS. Our target
price is reduced to S$1.30 (from S$1.50), based on 8x
shipbuilding earnings. Maintain NEUTRAL.

DBS maintain BUY:

Against all odds
 2Q15 results slightly above; shipbuilding gross
margin was low at 15% due to conservative
recognition for new projects
 Secured new orders worth US$510m in Jul-Aug
 Prime beneficiary of industry consolidation
 Reiterate BUY with 25% upside potential to our
S$1.62 TP plus 4-5% dividend yield
Highlights
2Q15 results slightly above. Yangzijiang reported 2Q15
PATMI of Rm1,031m (-7% y-o-y; +46% q-o-q), boosted by
subsidy income and gain on disposal of financial assets in the
quarter. This brings 1H15 PATMI to Rmb1,737m, making up
54% of our full year estimate (excl. old yard relocation fee).
The y-o-y decline in 2Q15 PATMI was attributable largely to
lower shipbuilding margins, and absence of Rmb349 tax
refund, partially offset by gain on disposal of financial assets
(Rmb158m) and subsidy income (Rmb124m).
Lower shipbuilding margins. Core shipbuilding gross margin
contracted 6ppts q-o-q to 14.8% due largely to prudent
recognition of new projects that hit initial recognition in 2Q,
especially for new vessel types like the 208dwt bulk carrier.
We expect margins to improve in 2H and average around 17%
for full year.
Sound balance sheet. Including Held-to-Maturity (HTM)
investments, Yangzjiang is in net cash, equivalent to 42 Scts
per share or 34% of its NTA.This bodes well for M&A
activities.
Outlook
New orders. Yangzijiang has secured new orders worth
US$510m in Jul-Aug, comprising four 9,700 TEU and four
3,800 TEU containerships; each comes with four options
totaling US$510m. This brings YTD wins to US$883m,
representing 44% of its US$2bn target. Nine existing orders,
primarily dry bulks, were changed to containerships, resulting
in an increase of US$25.4m to its orderbook.
Potential order pipeline includes 10k/14k TEU containerships,
LNG carriers, VLCC and tankers.
Orderbook stood at US$4.14bn as of end-Jun 2015 (excluding
orders won in Jul-Aug), translating into a healthy book-to-bill
of 1.8x.

GS maintain NEUTRAL:

Neutral Equity Research
Below expectations: Weak shipbuilding margins drive miss
What surprised us
YZJ reported 2Q15 operating profit of Rmb938mn (-13% yoy). 1H15 operating
profit of Rmb1.65bn (-19% yoy) was 45% / 47% of prior GS / Bloomberg
consensus FY15E – which we see as below expectations. 2Q15 highlights: 1)
Sales of Rmb5.7bn (+34% yoy) beat GSe, driven by higher-than-expected
trading sales (e.g. scrap metal sales) of Rmb1.4bn (+192% yoy), which is
lumpy in nature; 2) Gross margins of 18.0% (1Q15: 25.7%; prior GSe:
24.2%), however, disappointed given initial sales recognition of first time
projects (e.g. 208K dwt dry bulk) and higher-than-expected trading sales mix
(which has low GPM of 2%); 3) No new orders were secured during 2Q,
but YZJ has received US$510mn containership new orders during Jul-Aug.
While ytd new orders of US$0.9bn are tracking below GS FY15E of US$1.7bn
(company guidance: US$2bn), YZJ stated that it may turn more aggressive
and is now willing to secure orders at lower margins; 4) Customers
requested to modify 9 vessels in the existing orderbook (7 vessels
from dry bulk to containership and 2 vessels from large dry bulk to smaller dry
bulk) given weak dry bulk outlook, which overall resulted in slightly higher
orderbook of US$25mn but with limited impact on margins; 5) Trust loans
declined qoq to Rmb10.8bn (1Q15: Rmb11.7bn). YZJ maintains it guidance
of keeping trust loans below Rmb10bn by end-2015.
What to do with the stock
Maintain Neutral. We cut our 2015E-2017E EPS by 1%-6% to factor in lower
shipbuilding margins. Consequently, we revise our 12-m EV/GCI vs.
CROCI/WACC-based (cash return multiple of 0.7X unchanged) TP to S$1.40
(S$1.48 prior). Key risks: (1) stronger-/weaker-than-expected shipping
demand; (2) stronger-/weaker-than-expected competition.

YANGZIJIANG: In chairman Ren's own words.....

On shipbuilding orders.
“In 1H15, effective contracts in China fell 80% YoY. Yangzijiang was not spared, with few orders before May. Many Chinese yards focused on dry bulk carriers and thus did not perform. The containership space was more vibrant, but orders were lost to Korean and Japanese players who competed hard on prices. In June, we adjusted our marketing/sales strategy and prioritised the orderbook over profit margins and immediately won orders. But Yangzijiang is not a (South) Korean yard, nor a Japanese yard, nor a Chinese state-owned yard. We will not take loss-making orders to keep the yard busy.”

On property development.
“Entering this market was a strategic error. Exiting it is our correction. Property prices have rebounded recently, but the long-run prospects are negative. Yangzijiang will take this opportunity to exit the business. Funds will be redirected to the shipbuilding business, but potential income growth from property will be sacrificed.”

On Yangzijiang’s ship chartering business.
“This is a supplement, not a main business. Management will not actively expand this segment, and actually looks to dispose assets opportunistically. The concept is that of a “profit reservoir” – buy halfcompleted vessels from distressed yards at scrap-metal prices, complete the vessels and put them in the chartering business for some recurring income before they are eventually sold. In 2Q15, the company sold two such dry bulk carriers to customers.”

On steel prices.
“Steel is now cheaper than cabbages. This cannot go on.”

On offshore fabrication.
“Progress on the jack-up rig is normal, and on track for year-end scheduled delivery. The customer is from the Middle East, so there are no worries on it taking delivery. Yangzijiang has not given up on the offshore business, but under the current oil price environment and with our own current capabilities, we will not expand this business. We are happy we decided to take only one order when the market was hot – now competitors like Shanghai Waigaoqiao (Free Trade Zone Development Co Ltd) (600648 CH, NR) and COSCO (COS SP, NR) are suffering. We will use clean-energy vessels (liquefied natural gas/liquefied petroleum gas carriers) to replace offshore growth.”

On a dual-listing.
“Investment banks have approached us on this topic. The original premise is positive – higher valuations and higher liquidity from dual-listing in Hong Kong or China. However, before we decide to dual-list, we have some considerations: i) a clear use for the cash, which we may not have now, ii) original listing in Singapore was that of a small, old Yangzi yard. We are now a much larger organisation and we may face compliance and regulatory complications, and iii) expected market reception. We will only list at a good price, not for the sake of listing. Just because we have considered dual-listing, does not mean we will take immediate action. For now, we are not moving ahead.”

On held-to-maturity (HTM) assets.
“We are no longer lending to property companies, new customers, or small-/medium-enterprises. The lending book will fall, and so will our borrowings. We have been asked to give a special dividend after liquidating the HTM assets. However, we want to maintain our strong financial position. Banks will only lend to people with money. We want to keep those banking lines open.”

On M&As.
“They are much less attractive today compared to when we considered them in 1H15. Right now, even if you gave us a yard for free, we will not accept it. There will be reasons why they have gone bankrupt. We aim to maintain our profitability.”

To this Yangzijiang CEO Mr Ren Letian added: “Right now, our yard produces vessels of similar quality to Japanese or (South) Korean builds, but our efficiency levels are still lower. We are targeting productivity growth and improvements not in capacity, but in efficiency.”


*Notes from RHB Research's report dated 5 Aug by Lee Yue Jer, CFA

(Vested)