Asia Pacific Equity Research 08 July 2015

Yangzijiang Shipbuilding Holdings Ltd. Increasing burden of over-owned vessels We expect continued downward pressure on YZJ’s earnings amid weak BDI. The lack of new orders will be one reason, and the other will be its overowned bulk carriers. YZJ has 14 bulk carriers delivered from itself with nine more to come, while the vessels’ freight rates remain below BEP. Efforts to change product mix could take several years to show meaningful figures, in our view. We remain UW with a S$1.00 PT.  Fourteen bulk carriers on hand, and nine more ships to come. YZJ started the ship lease business and made bulk carrier orders to itself from early 2013 (14 ships) and 2014 (four ships). After assuming five bulk carrier ships in 2010 and 2012, YZJ accelerated its move to ship owning, with a total of 18 ship contracts. It now has 14 bulk carriers on hand and nine ships in its order book. Most of its vessels are sized at 63,000DWT.  Weak freight rates below BEP. The market is not favorable for YZJ. Long-term time charter rates for the vessels are US$7,900-8,200/day, well below BEP of US$10,900/day, based on our estimates. The YTD average spot rate is US$6,785, and though it recently recovered to US$9,322/day, it is still below BEP. The time charter market for the vessels is extremely weak, with just one ship contracted YTD and only nine in 2014. YZJ is aiming at the ship lease business, but we see little opportunity here. Assuming that all its vessels operate in the spot market, we believe YZJ could suffer losses of US$30mn p.a., roughly 8-10% of its annual profit, unless there is a dramatic recovery in bulk freight rates.  2015 not an easy year. First, we expect YZJ to show declining figures, as it has started to deliver low-priced contracts signed in 2013, the bottom of ship prices. Second, it shows stagnated order wins, especially of its main operational driver, bulk carriers. Without bulk, it may need significant time to restore proper operations and profitability in its yard. No yard can change product mix in a couple of years, in our view.

Yangzijiang Shipbuilding Holdings Ltd. (Reuters: YAZG.SI, Bloomberg: YZJSGD SP) Year-end Dec FY14A FY15E FY16E FY17E Revenue (Rmb mn) 15,354 14,287 13,881 13,309 Operating Profit (Rmb mn) 3,709 2,172 2,208 1,998 Net Profit (Rmb mn) 3,479 1,776 1,810 1,644 EPS (Rmb) 0.91 0.46 0.47 0.43 BVPS (Rmb) 5.34 5.64 5.95 6.23 Revenue growth 7.1% (6.9%) (2.8%) (4.1%) EPS growth 12.4% (48.9%) 1.9% (9.2%) ROE 18.2% 8.4% 8.2% 7.0% P/E (x) 6.8 13.4 13.1 14.4 P/BV (x) 1.2 1.1 1.0 1.0 EV/EBITDA (x) 7.0 9.6 9.4 10.3 Dividend Yield 4.9% 2.7% 2.7% 2.4% ROA 8.3% 4.3% 4.3% 3.8%

Underweight YAZG.SI, YZJSGD SP Price: S$1.35 Price Target: S$1.00

Singapore Ship Building & Repairs Sokje Lee

AC

(82-2) 758-5729 [email protected] Bloomberg JPMA SOKJELEE J.P. Morgan Securities (Far East) Ltd, Seoul Branch

Minsung Lee (822) 758-5728 [email protected] J.P. Morgan Securities (Far East) Ltd, Seoul Branch

Corrine Png (65) 6882-1514 [email protected] J.P. Morgan Securities Singapore Private Limited Price Performance 1.6 1.4 S$ 1.2 1.0 Jul-14

Oct-14

Jan-15

Apr-15

Jul-15

YAZG.SI share price (S$) FTSTI (rebased)

Abs Rel

YTD 12.0% 14.4%

1m -4.3% -3.2%

Company Data Shares O/S (mn) Market Cap (Rmb bn) Market Cap ($ mn) Price (S$) Date Of Price Free Float(%) 3M - Avg daily vol (mn) 3M - Avg daily val (S$ bn) 3M - Avg daily val ($ mn) FTSTI Exchange Rate Price Target End Date Price Target (S$)

3m 1.9% 7.0%

12m 25.6% 25.5%

3,832 24 3,820 1.35 08 Jul 15 50.5% 10.96 0.02 11.6 3284.99 1.35 31-Dec-15 1.00

Source: Company data, Bloomberg, J.P. Morgan estimates. Note=Annual net profit, EPS and ROE based on 'net profit attributable to equity holders'.

See page 7 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com

Asia Pacific Equity Research 08 July 2015

Sokje Lee (82-2) 758-5729 [email protected]

Yangzijiang Shipbuilding Holdings (YZJSGD SP) Key catalyst for the stock price:

Upside risks to our view:

 Global macro improvement (oil prices, GDP growth, etc.)  Rise in newbuilding ship prices  Increased new order demand in commercial

 Proven fuel efficiency outweighing competitors  Successful integration and development of basic design from two R&D institutions acquired  Newbuilding price increases

(RMB in millions) Key financial metrics Net Sales Growth (%) Cost of Sales Gross Profit on Sales Gross Margin (%) SG&A SG&A to Sales (%) Other Income Other Gains/Losses Profit Before tax PBT Margin (%) Income Tax Expense Tax Rate (%) Net Income Net Margin (%) Net Income (Equity Holders) Net Margin (%)

FY14A 15,354 7% 11,210 4,144 27.0% 435 2.8% 631 -150 3,953 25.7% 472 12% 3,481 22.7% 3,479 22.7%

FY15E 14,287 -7% 11,715 2,572 18.0% 400 2.8% 200 140 2,205 15.4% 419 19% 1,786 12.5% 1,776 12.4%

FY16E 13,881 -3% 11,322 2,558 18.4% 350 2.5% 200 140 2,247 16.2% 427 19% 1,820 13.1% 1,810 13.0%

FY17E 13,309 -4% 10,961 2,348 17.6% 350 2.6% 200 140 2,042 15.3% 388 19% 1,654 12.4% 1,644 12.4%

Key model assumptions Shipbuilding div. sales - Growth (%) Investment & others

FY14A 11,402 2% 3,951

FY15E 10,832 -5% 3,455

FY16E 10,291 -5% 3,590

FY17E 9,570 -7% 3,739

Source: Company data, J.P. Morgan estimates.

Sensitivity analysis Sensitivity to Revenue - Impact of each +1%

Downside risks to our view:

 Late delivery of shipbuilding contracts  Deterioration of macro environment  Failure to meet new environmental regulations (CO2, SOx and NOx)

Valuation and price target basis

Our Dec-15 PT of S$1.00 is derived by applying a target multiple of 0.8x to 2015E BPS of Rmb5.64 (S$1.27, based on 4Q15E J.P. Morgan FX assumptions). Our target P/B multiple of 0.8x is the SD-1 level of YZJ’s five-year historical average P/B, as we reflect the expected earnings downside from low-priced orders and falling bulk freight rates. YZJ: Backlog breakdown by vessel type (2014)

Containerships 31% Bulk carriers 69%

Source: Company data. *Based on backlog value (US$).

OP

NP

FY15E

FY16E

FY15E

FY16E

1.1%

1.1%

1.1%

1.1%

Source: J.P. Morgan estimates.

JPMe vs. consensus, change in estimates BPS JPMe old JPMe new % chg. Consensus

FY14E 5.62 5.64 0.3% 5.85

FY15E 6.07 5.95 -2.1% 6.44

Source: Bloomberg, J.P. Morgan estimates.

Asian shipbuilding: Peer valuations Company Hyundai Heavy Samsung Heavy DSME Hyundai Mipo Mitsui Eng & Ship. Yangzijiang SB

Currency KRW KRW KRW KRW JPY SGD

Rating OW OW OW OW OW UW

Price (LC) 8-Jul-15 112,500 18,100 13,400 64,700 205 1.35

PT (LC) 200,000 27,000 22,000 150,000 320 1.00

Mkt cap ($M) 7,542 3,686 2,262 1,141 1,401 3,822

Source: Bloomberg. Note: Market caps are calculated using forex rates as of July 8, 2015.

2

P/E (x) 2015E 2016E 35.1 14.6 13.6 12.0 nm 9.9 7.2 4.8 15.0 10.9 13.4 13.1

P/B (x) 2015E 2016E 0.6 0.5 0.7 0.7 0.5 0.5 0.7 0.6 0.7 0.7 1.1 1.0

EV/EBITDA (x) 2015E 2016E 13.4 9.7 10.6 8.7 74.5 10.9 12.1 7.9 7.2 5.8 9.6 9.4

RoE (%) 2015E 2016E 1.4 3.4 5.3 6.0 -3.8 5.4 8.9 13.2 3.5 4.6 8.4 8.2

Sokje Lee (82-2) 758-5729 [email protected]

Asia Pacific Equity Research 08 July 2015

Figure 1: YZJ: Time charter rates of Handymax bulk carrier (58K DWT) US$/day

13000

Handy bulk BEP

12000 11000 10000 9000 8000 7000 6000

Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 1yr time charter

3yr time charter

Source: Clarksons.

Table 1: YZJ: Owned bulk carriers DWT Type Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk

Name Kaley Laura Idee Fixe Yangze 8 Roberta Yangze 9 Soho Trader Yangze 6 Yangze 7 TW Hamburg TW Jiangsu TW Beijing TW Manila Yangze Navigation

Unit DWT DWT DWT DWT DWT DWT DWT DWT DWT DWT DWT DWT DWT DWT

Dwt 63283 63399 63458 63532 63600 63600 63600 63478 63523 93225 93225 93243 93250 93197

Flag Marshall Islands Marshall Islands Marshall Islands Liberia Marshall Islands Liberia Marshall Islands Liberia Liberia Liberia Liberia Liberia Liberia Marshall Islands

Unit DWT DWT DWT DWT DWT DWT DWT DWT DWT

Dwt 63478 63478 63478 82000 82000 63600 63600 63600 63600

Flag China China China Marshall Islands Marshall Islands Hong Kong Hong Kong Hong Kong Hong Kong

Built 2015 2015 2015 2015 2015 2015 2015 2014 2014 2012 2012 2012 2012 2010

Yard Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ

Source: Clarksons

Table 2: YZJ: Ships on order DWT Type Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk Bulk

Name Tiger Fujian YZJ2013-1095 YZJ2013-1096 Vulcania YZJ2013-1135 YZJ2014-1097 YZJ2014-1098 YZJ2014-1099 N/B JIANGSU NEW YANGZIJIANG

Built 2015 2015 2015 2015 2015 2016 2016 2016 2017

Yard Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ Jiangsu New YZJ

Source: Clarksons.

3

Sokje Lee (82-2) 758-5729 [email protected]

Asia Pacific Equity Research 08 July 2015

Table 3: YZJ: Earnings estimate revisions Won in billions Sales Old New chg. (%) Operating profit Old New chg. (%) Net profit Old New chg. (%) OP margin Old New chg. (%) Net margin Old New chg. (%)

FY15E

FY16E

FY17E

14,232.2 14,286.8 0.4%

13,907.6 13,880.6 -0.2%

NA 13,309.3 NM

2,542.3 2,171.8 -14.6%

2,702.7 2,208.3 -18.3%

NA 1,998.2 NM

2,015.6 1,786.2 -11.4%

2,169.2 1,820.0 -16.1%

NA 1,653.7 NM

17.9% 15.2% -2.7%p

19.4% 15.9% -3.5%p

NA 15.0% NM

14.2% 12.5% -1.7%p

15.6% 13.1% -2.5%p

NA 12.4% NM

Source: J.P. Morgan estimates.

Investment Thesis, Valuation and Risks Yangzijiang Shipbuilding Holdings Ltd. (Underweight; Price Target: S$1.00) Investment Thesis Yangzijiang Shipbuilding is one of the leading private yards in China specializing in bulk carriers. Listed on the SGX in 2007, the company has shown stronger operational performance than its peers. Since 2010, the company has compensated for weaker industrial trends with HTM asset investments, generating 16-28% of its gross profit from the new business. Now, with the recovery of the shipbuilding industry, YZJ is focusing more on its core business. However, we see continued downside risks from its shipbuilding operations, given its lack of basic design skills compared to Korean and Japanese peers. Moreover, we expect the tightening environmental regulations to be a threat to its order outlook, which will likely pressure its share price momentum. Valuation Our Dec-15 PT of S$1.00 is derived by applying a target multiple of 0.8x to 2015E BPS of Rmb5.64 (S$1.27, based on 4Q15E J.P. Morgan FX assumptions). Our target P/B multiple of 0.8x is the SD-1 level of YZJ’s five-year historical average P/B, as we reflect the expected earnings downside from low-priced orders and falling bulk freight rates. Risks to Rating and Price Target Key upside risks include: (1) proven fuel efficiency outweighing competitors; (2) successful integration and development of in-house basic design; and (3) newbuilding price increases.

4

Asia Pacific Equity Research 08 July 2015

Sokje Lee (82-2) 758-5729 [email protected]

JPM Q-Profile Yangzijiang Shipbuilding (Holdings) Ltd. (CHINA / Industrials) As Of: 02-Jul-2015

[email protected]

12 Mth Forward EPS

3.00

1.20

2.50

1.00

2.00

0.80

1.50

0.60

1.00

0.40

0.50

0.20

PE (1Yr Forward)

Current:

7.9x

40.0x

Current:

0.81

Current:

Feb/15

Oct/13

Jun/14

Feb/13

Oct/11

P/E Relative to China Index

Jun/12

Feb/11

Oct/09

Jun/10

Feb/09

Oct/07

Jun/08

Feb/07

Oct/05

Jun/06

Feb/05

Oct/03

Jun/04

Jun/00

Feb/03

0.00

Jun/15

Sep/14

Dec/13

Jun/12

Mar/13

Sep/11

Dec/10

Jun/09

Mar/10

Sep/08

Dec/07

Jun/06

Mar/07

Sep/05

Dec/04

Jun/03

Mar/04

Sep/02

Dec/01

Jun/00

Mar/01

0.00

Oct/01

1.41

Jun/02

Current:

Feb/01

Local Share Price

0.76

1.80

35.0x

1.60

30.0x

1.40

25.0x

1.20 1.00

20.0x

0.80

15.0x

Earnings Yield (& Local Bond Yield) 35%

12Mth fwd EY

Current:

China BY

13%

Dividend Yield (Trailing)

Current:

Feb/15

Oct/13

Jun/14

Feb/13

Jun/12

Oct/11

Feb/11

Jun/10

Oct/09

Feb/09

Jun/08

Oct/07

Jun/06

Feb/07

Oct/05

Jun/04

Feb/05

Oct/03

Feb/03

Oct/01

Jun/02

Jun/00

Feb/15

Oct/13

Jun/14

Feb/13

Oct/11

Jun/12

Jun/10

Feb/11

Oct/09

Feb/09

Oct/07

Jun/08

Feb/07

Jun/06

Oct/05

Jun/04

Feb/05

Oct/03

Feb/03

Oct/01

Jun/02

0.00 Jun/00

0.20

0.0x Feb/01

0.40

5.0x

Feb/01

0.60

10.0x

3.88

10.0

Proxy

9.0

30%

8.0

25%

7.0 6.0

20%

5.0

15%

4.0

10%

3.0 2.0

5%

1.0

ROE (Trailing)

17.15

60.00

Price/Book (Value) 20.0x

40.00

15.0x

P/B Trailing

Feb/15

Jun/14

Oct/13

Feb/13

Current:

25.0x

50.00

Jun/12

Oct/11

Feb/11

Jun/10

Oct/09

Feb/09

Jun/08

Oct/07

Feb/07

Jun/06

Oct/05

Feb/05

Jun/04

Oct/03

Feb/03

Oct/01

Jun/02

Jun/00

Feb/01

0.0

Feb/15

Oct/13

Current:

Jun/14

Feb/13

Jun/12

Oct/11

Jun/10

Feb/11

Oct/09

Feb/09

Oct/07

Jun/08

Feb/07

Jun/06

Oct/05

Feb/05

Oct/03

Jun/04

Feb/03

Oct/01

Jun/02

Jun/00

Feb/01

0%

1.2x

P/B Forward

10.0x

30.00

5.0x

20.00

0.0x 10.00

-5.0x

Feb/15

Jun/14

Oct/13

Feb/13

Jun/12

Oct/11

Feb/11

Jun/10

Oct/09

Feb/09

Jun/08

Oct/07

Feb/07

Jun/06

Oct/05

Feb/05

Jun/04

Oct/03

Feb/03

Oct/01

Jun/02

Jun/00

-10.0x Feb/01

Feb/15

Oct/13

Jun/14

Feb/13

Oct/11

Jun/12

Jun/10

Feb/11

Oct/09

Feb/09

Oct/07

Jun/08

Feb/07

Jun/06

Oct/05

Feb/05

Oct/03

Jun/04

Feb/03

Oct/01

Jun/02

Jun/00

Feb/01

0.00

Summary Yangzijiang Shipbuilding (Holdings) Ltd. 3983.38 CHINA 10.10401 TICKER YZJSGD SP Industrials Machinery Latest Min 12mth Forward PE 7.94x P/BV (Trailing) 1.17 0.95 Dividend Yield (Trailing) 3.88x 0.00 ROE (Trailing) 17.15 17.15

Max

Median

Average

2 S.D.+

2 S.D. -

25.00 8.59 50.00

1.71 4.01 36.83

3.07 3.66 35.31

10.61 7.40 57.59

-4.46 -0.07 13.04

2-Jul-15 As Of: Local Price: 1.41 EPS: 0.81 % to Min % to Max % to Med % to Avg -19% -100% 0%

2039% 122% 192%

46% 4% 115%

163% -5% 106%

Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, JPMorgan Quantitative & Derivative Strategy

5

Sokje Lee (82-2) 758-5729 [email protected]

Asia Pacific Equity Research 08 July 2015

Yangzijiang Shipbuilding Holdings Ltd.: Summary of Financials Balance sheet

Rmb in billions, year end Dec Assets Current assets Cash and cash equivalents Trade and Other Current Receivables Inventories Others Non-current Assets Property, Plant and Equipment Investments in Associates Others Liabilities Current liabilities Trade and Other Current Payables Others Non-current Liabilities Long-term debt Others Stockholders' Equity Total Debt Net Debt(Cash) Cash flow statement Rmb in billions, year end Dec Cash Flows from Operating Net Income(Net Loss) Depreciation & Amortisation (Inc) Dec in working capital Payments of Income Taxes Others Cash Flows from Investing Free cash flow Cash Flows from Financing Inc(Dec) in Cash Cash at The Beginning Cash at The End

Income Statement

FY14

FY15E

FY16E

FY17E

15,354 7.1% (11,210) 4,144 27.0% (435)

14,287 (6.9%) (11,715) 2,572 18.0% (400)

13,881 (2.8%) (11,322) 2,558 18.4% (350)

13,309 (4.1%) (10,961) 2,348 17.6% (350)

3,709 (15.9%) 24.2%

2,172 (41.4%) 15.2%

2,208 1.7% 15.9%

1,998 (9.5%) 15.0%

3,953 (472) 11.9% 3,479 12.4%

2,205 (419) 19.0% 1,776 (48.9%)

2,247 (427) 19.0% 1,810 1.9%

2,042 (388) 19.0% 1,644 (9.2%)

4,140 (11.9%)

2,692 (35.0%)

2,773 3.0%

2,612 (5.8%)

FY14

FY15E

FY16E

FY17E

0.91 12.4% 5.34 0.31 4.9% 6.8 1.2 7.0 18.2% 27.0% 24.2% 22.7% 27.0% 1.9 56.6 Source: Company reports and J.P. Morgan estimates. Net profit, EPS and ROE based on Owners' net income; BVPS based on Owners of parent equity.

0.46 (48.9%) 5.64 0.17 2.7% 13.4 1.1 9.6 8.4% 18.0% 15.2% 12.4% 18.8% 1.4 51.4

0.47 1.9% 5.95 0.17 2.7% 13.1 1.0 9.4 8.2% 18.4% 15.9% 13.0% 20.0% 1.4 40.7

0.43 (9.2%) 6.23 0.15 2.4% 14.4 1.0 10.3 7.0% 17.6% 15.0% 12.4% 19.6% 1.3 40.7

6

FY14

FY15E

FY16E

40,778 25,762 2,653 841 2,015 20,254 15,016 6,117 463 8,433 19,702 15,364 5,723 9,641 4,338 2,636 1,702 21,076 8,050 5,398

41,620 25,297 5,706 783 1,284 17,524 16,323 6,252 463 9,606 19,610 15,114 5,437 9,677 4,496 2,768 1,728 22,010 7,911 2,206

42,536 25,080 5,409 761 1,241 17,670 17,456 6,444 463 10,549 19,449 14,755 5,165 9,590 4,695 2,906 1,788 23,087 7,793 2,384

FY14

FY15E

FY16E

9,061 3,479 430 5,257 (492) (1,351) 8,486 (6,494) 1,216 1,436 2,653

4,343 1,776 520 2,049 (419) (1,640) 4,012 350 3,053 2,653 5,706

1,155 1,810 565 (1,217) (427) (1,808) 721 355 (297) 5,706 5,409

FY17E Rmb in billions, year end Dec 43,450 Net Sales Growth(%) 24,734 4,649 Cost of Sales 729 Gross Profit on Sales Gross margin 1,201 18,154 SG&A 18,717 6,586 463 11,667 19,395 14,492 4,907 9,586 4,903 3,052 1,851 24,055 7,694 3,044

Operating Income Growth(%) Operating Margin (%) Income Before Income Taxes Income Taxes Expenses Tax Rate (%) Net Income Growth(%) EBITDA Growth(%)

Ratio Analysis FY17E Rmb, year end Dec 709 EPS 1,644 EPS Growth(%) 614 BPS (1,430) DPS (388) Dividend Yield(%) - PER (x) (1,882) PBR (x) 273 EV/ EBITDA (x) 414 ROE(%) (759) Gross Margin (%) 5,409 Operating Margin (%) 4,649 Net margin(%) EBITDA Margin (%) Working Capital Turnover (x) Inventory Turnover (days)

Asia Pacific Equity Research 08 July 2015

Sokje Lee (82-2) 758-5729 [email protected]

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention.

Important Disclosures



Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Yangzijiang Shipbuilding Holdings Ltd..



Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Yangzijiang Shipbuilding Holdings Ltd..



Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Yangzijiang Shipbuilding Holdings Ltd..



Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Yangzijiang Shipbuilding Holdings Ltd.. Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-4770406 or e-mail [email protected]. Yangzijiang Shipbuilding Holdings Ltd. (YAZG.SI, YZJSGD SP) Price Chart 4

3

OW S$1.8

N S$1

N S$1.15 UW S$1

Price(S$) 2

1

Date

Rating Share Price (S$)

Price Target (S$)

30-Jun-11

OW

1.45

1.80

10-Aug-12 N

0.98

1.00

07-Aug-14 N

1.10

1.15

28-Feb-15 UW

1.24

1.00

0 Apr 07

Oct 08

Apr 10

Oct 11

Apr 13

Oct 14

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Jun 30, 2011.

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) 7

Sokje Lee (82-2) 758-5729 [email protected]

Asia Pacific Equity Research 08 July 2015

coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com. Coverage Universe: Lee, Sokje: CHIYODA (6366) (6366.T), Daelim Industrial (000210.KS), Daewoo Engineering & Construction Co.,Ltd. (047040.KS), Daewoo Shipbuilding & Marine Engineering (042660.KS), GS Engineering & Construction (006360.KS), Hyundai Development Company (012630.KS), Hyundai E&C (000720.KS), Hyundai Heavy Industries (009540.KS), Hyundai Mipo Dockyard (010620.KS), JGC (1963) (1963.T), Mitsui Engineering & Shipbuilding (7003) (7003.T), Samsung Engineering (028050.KS), Samsung Heavy Industries (010140.KS), Yangzijiang Shipbuilding Holdings Ltd. (YAZG.SI) J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2015

J.P. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients*

Overweight (buy) 44% 51% 45% 71%

Neutral (hold) 43% 48% 47% 66%

Underweight (sell) 13% 38% 9% 57%

*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email [email protected]. Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

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Sokje Lee (82-2) 758-5729 [email protected]

Asia Pacific Equity Research 08 July 2015

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Sokje Lee (82-2) 758-5729 [email protected]

Asia Pacific Equity Research 08 July 2015

and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / [email protected]. General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise. "Other Disclosures" last revised March 28, 2015.

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