Yangzijiang (YZJ): About 50% of YZJ’s US$4.8b order book is dominated by bulk carriers which face heightened cancellation and deferral risks amidst recession in the dry bulk sector. This is expected to be weighed by contracting demand for iron ore and coal, especially in China.
CIMB believes that other than coping with lower order momentum, YZJ could also face deferrals and cancellation of the 71 units of bulk carriers on order, amounting to US$2.34b. Some customers in Japan and the US have downsized their operations and may not be able to take on delivery.
House reckons earnings will continue to deteriorate in 2016-17 on lower margin jobs, deferral of deliveries, weak order momentum and investment in lower-return investments.
CIMB maintains Hold rating with TP of $1.21.
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