Yangzijiang

Yangzijiang: 4Q13 net profit of Rmb746.3m (-8% y/y) was broadly in line with street estimates, on revenue of Rmb3.4b (-5%). For the full year, net profit was Rmb3.1b (-14%), while revenue came in at Rmb14.3b (-3%). Shipbuilding remained the group’s core revenue driver, contributing ~90% of group revenue in FY13. Revenue from shipbuilding declined marginally to Rmb12.8b in FY13, due to fewer vessel deliveries (34 vs 51 in FY12), but was offset by a higher proportion of large vessel completions. The group also recorded lower revenue from the ship demolition business, which declined 33% to Rmb353m, while other shipbuilding related revenue declined 25% to Rmb828m. On the other hand, revenue from the investment segment (comprising interest income from financial assets, held-to-maturity and micro finance business) rose 15% to Rmb1.5b in FY13. Overall group gross margin expanded to 33.2% (from 30.9% in FY12), as the group executed higher-priced shipbuilding orders secured prior to the financial crisis, and benefited from the increase in contribution from the higher margin investment segment. Other income consisting of interest income from bank deposits and charter income from the ship finance leasing business increased 14% to Rmb332.4m, but was offset by a 69% fall in other gains, primarily due to an impairment provision of Rmb345.7m for its owned vessels. Net gearing increased to 19.3% (from 7% in FY12) as the group executed its fund deployment strategy to take advantage of the low borrowing cost climate to expand its investment business. Dividends maintained at 5¢, representing a payout ratio of 30%, and 4.4% yield. Yangzijiang’s order book stands at US$4.6b for 111 vessels, with 11 outstanding options worth US$0.8b. Meanwhile the group has made substantial progress in its offshore ssegment, having signed a contract to build two semi-sub rigs for US4825m, with options for two additional similar units, though the contracts have not yet been made effective pending receipt of downpayment. Management will also be diversifying into real estate, and will acquire Jiangsu Hengyuan Real Estate Development Co for Rmb300m, on par with the independent valuation. The stock trades at 1.2x P/B, 6.8x P/E.