Excerpts from CGS-CIMB report
Analyst: LIM Siew Khee
Made up for lost time
■ Yard operations resumed fully since Apr. Shipbuilding GM jumped to 22% (1Q20: 9%), thanks to the resale of 157k dwt oil tanker previously cancelled.
■ New order wins at US$517m, in line with our US$1.1bn for 2020. Order book stood at US$2.6bn. Maintain Add and TP of S$1.37, still on SOP valuations.
Catching up well
Core shipbuilding revenue grew 29% qoq to Rmb2.9bn with 16 vessels delivered (1Q: 12 vessels) which included four vessels from its JV yard, Yangzi-Mitsui Shipbuilding Co (YAMIC).
YZJ’s yard operations have resumed to full capacity since Apr and are on track to deliver the targeted 51 vessels for FY20.
We should expect stronger qoq revenue in 3Q20, especially as the group has delivered a 12,600 TEU containership, the largest containership it has ever built.
Margin and taxes
The 157k dwt oil tanker that was cancelled in 1Q20 was resold in 2Q20. This has also caused shipbuilding gross margins to jump to 22% from 9% in 1Q20 and 18% in 2Q19.
-- CGS-CIMB report
The effective tax rate remained high at 28.6% in 2Q20, higher than 21% in general, as YZJ adopted the 25% standard income tax rate instead of 15% preferential tax rate for the earnings of Jiangsu New Yangzi Shipbuilding due to fewer activities.
We believe there could be some reversal in 2H20 as activities pick up.
YAMIC contributes to orders YZJ won US$160m of new orders in 2Q20, bringing total order wins to US$517m as of 1H20.
These new orders of 15 vessels included bulk carriers of various sizes (3x 82k dwt, 2x 56k dwt bulk carries, 2x 40k) as well as 2x 14k TEU containerships. Order book stood at US$2.6bn, comprising 62 vessels.
YAMIC contributes to US$234m of its order book with 7 x 82k dwt bulk carriers and 1x 29.8k dwt self-loading carrier. According to YZJ, it is ranked No. 2 in China and No. 7 in the world by outstanding order book.
Its order book will keep its yard facilities at a healthy utilisation rate till early 2022 with revenue visibility of 1.5 years.
HTM balance generating higher returns
The assets held to maturity (HTM) balance rose c.Rmb538m qoq to Rmb16.05bn.
Interest income derived from the investment segment increased 14% qoq and 10% yoy to Rmb578m on higher average interest rate earned from new investments.
1H20 annualised return of investment was c.14%, higher than its typical 8-10% currently.
|Stock trades at 10-year trough
In our SOP, we value HTM at 1x FY20F P/BV and shipbuilding at 0.7x book value.
Risks are order drought and cancellations.
Catalysts are stronger-than-expected orders.
Full report here.