Yangzijiang

Yangzijiang: FY14 results beat estimates, although 4Q14 net profit fell 15% y/y to Rmb636.6m, taking FY14 earnings to Rmb3.5b (+13%) or 4% higher than consensus forecast.

Revenue for the quarter rose 12% to Rmb3.8b, boosted by the delivery of nine vessels compared to six in 4Q13. But contributions from held-to-maturity (HTM) assets fell 56% to Rmb161.1m from a stricter investment criteria, in line with the group’s strategy to pare down its non-core segment.

Overall, gross margin almost halved to 22.4% (-19.8ppt), dragged by a margin compression in the core shipbuilding segment to 17% (4Q13: 43%), following completion of earlier lucrative contracts. In addition, the group has commenced construction of its first jack-up project, which commands lower margin versus other commercial vessels.

Bottom line was further depressed by provisions made for HTM (Rmb315m), on the back of the weakening outlook of China's real estate industry, as well as higher R&D expenses, but partially mitigated by a government subsidy and turnaround in associates and JVs to Rmb20.7m.

Order book held steady at US$4.75b, comprising 118 vessels, of which US$1.8b was secured in FY14 (FY13: US$2.9b). For 2015, management is guiding for US$2b in new orders.

Management declared a first and final DPS of 5.5¢, higher than FY13's 5¢.

At the current price, Yangzijiang is trading at 7.1x forward P/E and 1.05x P/B.

Latest broker ratings:
OCBC maintains Buy but places TP of $1.31 under review
Maybank-KE downgrade to Hold from Buy, cuts TP to $1.33 from $1.40
DBS maintains Buy with TP of $1.62