Yangzijiang

Yangzijiang: 2Q14 results were largely buoyed by once-off gains, stripping it out, 2Q14 results would have been largely in-line. Net profit at Rmb1.2b (+52%) took 1H14 net profit to Rmb2.0b (+33%), while revenue was down 3% to Rmb4.3b. Despite having nine vessels delivered in 2Q14 versus the 11 in 2Q13, the shipbuilding segment revenue only decreased slightly by 3.2% to RMB3.9b primarily due to the construction and delivery of the first batch of 10,000TEU containerships with higher contract prices. The shipbuilding related segment’s revenue was also effectively supplemented by the trading business, whose revenue accounted for ~12% of the shipbuilding segment’s revenue. Meanwhile revenue contribution in 2Q14 from Held-to-Maturity financial assets under the investment segment decreased 43% q/q to Rmb339.9m, due to several higher return investments having matured in 1Q14. Overall gross margins remained healthy at 27.7% due mainly to construction and delivery of the first batch of 10,000TEU containerships with higher contract prices. Bottom-line was largely aided by a 317% jump in other income to Rmb215m, led by a once off realization of Rmb130m interest income from the release of restricted cash deposit which reached maturity in 2Q14, while the group also received Rmb85.3m tax credit versus tax expenses of Rmb299.5m from the previous year. Going forward, YZJ guides that the shipbuilding industry continues to exhibit signs of recovery, and the group continues to witness gradual increase in new shipbuilding prices in tandem with steady number of vessel new build enquires. The group has started to redirect resources from its non-shipbuilding businesses into its shipbuilding and related businesses, in a bid to match against stronger competitors. Overall fundamentals remain healthy with the group in a relatively low net gearing of 19.4%, while its orderbook at US$5b should provide revenue visibility over the next two to three years. At the current price, Yangzijiang trades at 7.7x forward P/E versus closest peer Cosco of 31.6x.