Chan Kit Whye, DBS Vickers on... YANGZIJIANG SHIPBUILDING

Prior to his retirement, Chan Kit Whye (left) worked more than 30 years as Regional Finance Director, Financial Controller and Manager in a multinational specialty chemical business. He has played an active role in CPA (Australia) Singapore Branch, taking up positions in its Continuing Professional Development and Social Committees. Kit Whye is a Fellow of CPA Australia, CA of Institute of Singapore Chartered Accountants and CA of the Malaysian Institute of Accountants. He holds a BBus(Transport) Degree from RMIT, MAcc Degree from Charles Sturt University and MBA from Durham Business School.


Yangzijiang Shipbuilding reported Q1 revenue of RMB 3.55 billion, 24% higher than prior year's Q1 and 5% higher than prior year's Q4.

Net profit attributable to shareholders was RMB 799 million, 11% higher than prior year's Q1 and 7% higher than prior year's Q4.

All core segments of its business - shipbuilding segment, investment and micro-finance segments - recorded healthy growth.

Q1 earnings per share came in at 20.9 cents RMB vs prior year's Q1 of 18.7 cents RMB and prior year's Q4 of 19.5 cents RMB.

NAV per share was RMB 4.80 (SGD 0.96).

Current PE is 6.7 times and price-to-book ratio is 1.15.

Total borrowings have improved from RMB 14.5 billion in Dec 2013 to RMB 13.4 billion at end of March 2014, with a gross debt/equity ratio of 0.73.

After netting off its borrowings with restricted cash of RMB 8.4 billion, its net gearing looks reasonable at 0.27 times.

Working capital ratio has improved somewhat, from 1.36 at end 2013 to 1.25 in March 2014.

Its order book remain healthy, with 125 vessels valued at US$5.2 billion in the pipeline which will keep its shipyards busy till end 2016.

I expect its 5 cents SGD dividend will continue in the coming year.

So far this yer, Yangzijiang has won contracts worth US$1.1bn, lifting its orderbook to US$5.2bn. Photo: Company

Excerpts from DBS Vickers report

Analyst: Ho Pei Hwa (left) Order wins may beat guidance; emphasis on order delivery.  The upbeat YTD contract wins of US$1.1bn lifted Yangzijiang’s orderbook to US$5.2bn (43% containerships; 57% bulk carriers), translating to 2.8x book to bill ratio.   With the potential exercise of Seaspan ‘s remaining four options for 10k TEU containerships (worth around US$370m) in the next few months, Yangzijiang looks set to beat its internal target of US$1.5bn-2.0bn this year. We find comfort with management’s emphasis to remain focused on core shipbuilding business and ensuring on time, on budget delivery of quality vessels.  We are neutral on the cancellation of recent LOIs for two mid-water semi-submersible orders with Primepoint due to financing constraints, given the execution concern for offshore projects.  Nonetheless, Yangzijiang will carry on the R&D for the semi-sub design and negotiations with other potential buyers.     Revised TP of S$1.55 implies total return of 42%.  We have raised our FY14/15 net profit by 17% each to reflect the preferential tax rate of 15% (vs 25% previously) that was recently awarded to its New Yard.  Our TP is hence lifted to S$1.55. We believe Yangzijiang could sustain net profits of > Rmb3bn in FY14/15 and DPS of 4.5-5.0 Scts a year.  This is remarkable, as 30-50% of Chinese yards are at the fringe of bankruptcy.  Valuation remains undemanding at 1.0x P/BV and 7x PE in spite of its high ROE of 15% and yield of 4.5%. Reiterate BUY.