SINGAPORE (Aug 8): CGS-CIMB Securities is surprised by Yangzijiang Shipbuilding’s record delivery of 20 vessels in 2Q18, boosting 2Q18 revenue by 120% y-o-y to RMB 7.6 billion ($1.5 billion).
The delivery included 10 large vessels, including seven bulk carriers and three containerships.
Year to date, Yangzijiang has already secured 22 vessels consisting 14 bulk carriers, seven containerships and one combination carrier.
As of Wednesday, Yangzijiang’s order book stands at US$4.1 billion ($5.6 billion) for 114 vessels, enough to keep the yard facilities at a healthy utilisation rate up to 2020.
“We keep our expected orders at US$1.8 billion for FY18F,” says analyst Lim Siew Khee in a Wednesday report.
In 2Q18, better pricing and margin for the large vessels and stronger topline helped to boost shipbuilding gross margins to 21%, above the 20% expected by CGS-CIMB.
For FY18 and FY19F, the research house is raising gross margins expectations to 19% and 17% respectively from 15%.
To recap, in 2Q18, interest income from financial assets held to maturity (HTM) rose 13% to RMB 386 million, in line with a higher interest rate environment.
Yangzijiang also has RMB1.14 billion of unutilised provision for expected losses which could be reversed in the coming quarters, given the weakness in RMB.
As at end June, net cash stood at RMB4 billion, which should sustain the 4.7% dividend yield.
“Yangzijiang is one of our O&M preferred picks as it is trading at trough valuations of 0.6 times CY18 book value, with potential for positive earnings surprise,” says Lim.
“Our EPS is up by 1-18% for FY18-20F to reflect the strong 2Q18, higher HTM income and margins ahead,” adds the analyst.
CGS-CIMB has an “add” and a target price of $1.29.
As at 11.33am, shares in Yangzijiang are up 6.5 cents at 98 cents or about 7 times FY19F core earnings.
