Yangzijiang

Yangzijiang: 2Q13 results fell yoy, but came in above Bloomberg consensus estimates. Net profit at Rmb 812m, -8% yoy, mainly due to lower gross margins, higher tax and FX loss on contracts done in euros. Gross margins fell to 27.5% from 30.5%. In particular, shipbuilding margins were the drag, declining to 21% (1Q13: 26%, 2Q12: 24%). Revenue came in at Rmb 4,422m +12% yoy, due to higher revenue recognition from construction and delivery of large vessels during the quarter. This was despite a lower 11 vessels being delivered during the quarter, from 15 deliveries in 2Q12. Meanwhile interest income derived from HTM financial assets rose 20% yoy to Rmb 360m, due to a steady increase in investments in HTM financial assets. Although investment income from the micro financing business dropped 32% to $22.5m, due to the lower loan amount extended. As at end Jun, the group’s latest shipbuilding orderbook stands at 71 vessels with total value of US$3.24b. In 1H13, the group secured a total of 27 effective shipbuilding contracts with an aggregate value of US$1.01b. in addition, a further 4 options for bulk carrier vessels worth a combined US$103.7m, were converted into effective orders in Jul ’13. The group now has remaining 47 options (22 containerships, 25 multi-purpose bulk carriers) worth US$2.54b. Mgt notes that while the industry downturn may have a prolonger impact, stretching beyond 2013, its steady invmts in HTM assets will provide the group with a comfortable cushion. Mgt remains confident of the group’s performance for FY13. YZJ is among companies diversifying into offshore drilling and pdtn as demand for vessels decline. YZJ will embark on a key milestone - construction of its first jack up rig in Aug ’13, scheduled for delivery in mid 2015. At last close of $0.925, Yangzijiang trades at 5.3x annualized 2Q13 P/E, 1.06x P/B.