Yangzijiang

Yangzijiang - Latest news was last week when the grp announced a series of new shipbuilding contracts for 15 vessels valued at US$414m, comprising six 82,000 dwt bulk carriers, eight 64,000 dwt bulk carriers and one 94,000 dwt transload vessel, with expected delivery from 2015 to 2016. The latest orders bring total contracts secured by the group to 27 shipbuilding contacts worth US$1.01b in 1H13. This is further boosted by 51 options worth US$2.46b, of which 22 are for containerships worth US$1.56b and the other 29 for bulk carriers worth US$1.08b. We note that the year-to-date order wins has surpassed the US$300m placed for 11 vessels in FY12. This takes its current order book to ~US$3.5b, which stretches its earnings visibility over the next two years. With the Baltic Dry Index hitting 52-week highs, management is confident that more options will be exercised in 2H13. Meantime, the group has found new customers for three previously cancelled 2,500-TEU ship orders in 2Q13. Besides an improving order flow, its lucrative microfinancing business is expected to underpin its bottomline and help the group weather through the challenging shipping environment. Separately, YZJ has acquired the balance 49% equity stake in Jiangsu Yangzi Changbo Shipbuilding for Rmb110m, further supporting the ongoing consolidation within China’s shipbuilding industry, where only the strongest will survive Seperately, Further woes was seen for Chinese shipyards as China's largest private shipbuilder, China Rongsheng Heavy Industries, appealed to the government and its shareholders for financial help. This comes amidst Rongsheng culling some of its workers and delaying payments to suppliers. While no figures were disclosed, the Wall Street Journal estimates that Rongsheng has made redundant about 40% of its workforce, representing some 8,000 jobs. Meanwhile, the company gave further guidance of an expected net loss for 1H13. Ailing order books on back of excess capacity in the shipping industry, coupled with a credit crunch and slowdown in China's economy has hurt about 483 shipyards in China, and further industry consolidation can be expected. According to the China Association of National Shipbuilding Industry, the order book of Chinese shipbuilders sank 23% at the end of May from a year earlier and one-third of the yards facing the danger of closing have failed to win orders for the longest time. Given this precarious outlook, we remain cautious on SGX-listed Cosco Corp and somewhat alarmed by its highly geared balance sheet (net gearing at a whooping 82%), especially at a time when cash and strong operating cash flows will be critical for survival. We contrast Cosco's fundamentals to that of Yangzijiang, with its negligible gearing at just 4.2%, which will mitigate any cash flow issues and enable it to lever up for acquisition opportunities. Furthermore, YZJ lucrative microfinancing business could see it benefit from an industry where banks are scaling down loans given tighter credit conditions.