Yangzijiang

Yangzijiang: Newbuild orders have slowed substantially in China, with shipbuilding orders won from Jan to Aug 2015 amounted to only 15.05m dwt, a sharp 68.3% plunge compared to the previous corresponding period. This can be explained by China’s large exposure to the declining bulker sector, with YTD orders of 0.5m vs. 9.2m CGT in 2014.

Of Yangzijiang’s US$4.1b of outstanding order backlog, around 61% is for the construction of bulk carriers. Daiwa sees this segment facing the largest risk of order cancellations given a subdued dry-bulk outlook as a result of falling global commodities demand. According to China Customs Statistics, China’s coal imports by volume were down 31% YoY, with iron-ore imports largely flat. The Baltic Dry Bulk Index is down 33% from the high of 1,222 achieved in early Aug, with demand faltering amid a burdensome glut of new vessels.

Yangzijiang intends to re-focus its efforts on garnering more containership orders in the quarters ahead, in particular mega-size vessels, in which the Japanese and Korean yards have historically been dominant. However, such efforts might prove to be futile, as the containership sector is also facing its own overcapacity crisis. In the event that Yangzijiang does manage to secure new orders as a result of its aggressive pricing strategy, its operating margins would be negatively impacted.

Daiwa expects the current shipbuilding downturn to result in significantly lower operating margins for Yangzijiang’s core shipbuilding segment. House reiterates its Underperform rating with TP of $1.18.