Yangzijiang

Yangzijiang: 2Q11 results.
Revenue at Rmb 3.2b, +3% yoy, +4% qoq, with new contribution coming from the Changbo Yard. The group delivered 12 vessels in total this qtr.
Net profit at Rmb 964m, +20% yoy, +1% qoq, above consensus of Rmb 832m. Nevertheless, we note that forex and subsidy gains and interest income generated from HTM investments contributed Rmb 575m at the pretax level.
While lucrative, we highlight that investing in such HTM financial pdts in not without risk. It involves financing of PRC corporations in Real estate, Manufacturing and local Govt projects. Yields are high at 10-15% pa, and are supposedly backed by collateral, though there have been news reports that the collateral if often insufficient.

Gross margins declined to 22.1% (vs 24.8% yoy, 27.1% qoq), as fewer vessels secured prior to financial crisis, which has a correspondingly higher contract price, were delivered during the period.

In 2Q11, YZJ secured new shipbuilding contracts worth US$0.7b with Seaspan to build 7 units of 10k TEU containerships with options for additional 18 units of identical vessels to be built; as at the announcement date, 5 vessels are confirmed as effective orders.
The group’s outstanding order book stands at 126 vessels with a total value of US$5.5b as at end Jun. Mgt is confident of achieving on time delivery for the remaining deliveries in 2011.

Stock trades at 6.6x P/E.