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Monday, 04 May 2015
COMPANY RESULTS
BUY (Maintained)
Yangzijiang Shipbuilding (Holdings) (YZJSGD SP) 1Q15: Smooth Sailling Amid A Difficult Shipping Environment 1Q15 results were within our expectation. Earnings were boosted by higher other income and gains as well as lower expenses. While HTM investments were higher than a quarter ago, YZJ said it has not deviated from its goal of reducing the investments to below Rmb10b. Better risk control of HTM financial assets helps to ease market concern over the safety of the assets. Maintain BUY. Target price: S$1.67. 1Q15 RESULTS Year to 31 Dec (Rmbm) Revenue Gross Profit Other income
1Q15
1Q14
3,044 783 127
3,555 1,048 92
Other gains/(losses) - net PBT Income Tax expense
129 920 (204)
64 1,005 (212)
707 26
799 29
18
16
Net income Gross margin Shipbuilding and related GM
yoy Remarks % chg (14) See comments in segmental revenue breakdown table (25) 38 Recognition of Rmb88m advances from terminated shipbuilding contracts 100 Gain of Rmb55m from disposal of AFS asset (8) n.m. Higher effective tax rate due to reversion of Jiangsu Yangzijiang Shipbuilding to 25% from 15% (12) -4 ppt 3ppt decline in shipbuilding margins due to challenging operating environment 3 ppt Higher overall gros margin due to 26ppt increase in margins from miscellaneous shipbuilding activities
Source: YZJ UOB Kay Hian
Share Price Target Price Upside (Previous TP
COMPANY DESCRIPTION Yangzijiang Shipbuilding (Holdings) is a Jiangsu-based shipyard. Its major products are Handysize and Sub-Panamax containerships and Panamax bulk carriers
STOCK DATA GICS sector Bloomberg ticker: Shares issued (m): Market cap (S$m): Market cap (US$m): 3-mth avg daily t'over (US$m):
Industrials YZJSGD SP 3,832.1 5,614.0 4,236.0 8.7
Price Performance (%) 52-week high/low
1mth
S$1.47/S$1.01
3mth
6mth
1yr
YTD
18.1
29.6
33.2
21.6
14.5
RESULTS
S$1.47 S$1.67 +13.6% S$1.39)
Major Shareholders
• 1Q15 results were within our expectation. Yangzijiang Shipbuilding’s (YZJ) reported a net profit of Rmb707m for 1Q15, which was 23% of our full-year forecast. Earnings were boosted by: a) other income of Rmb127m (recognition of Rmb88m advances from shipowners in contracts that were cancelled, in accordance to its accounting policy), other gains totalling Rmb129m (Rmb55m gain from disposal of financial assets available-forsale) and a 23% yoy decline in administrative expense to Rmb69m while interest expense fell 54% yoy to Rmb50m on reduced borrowings.
%
-
-
FY15 NAV/Share (Rmb)
5.90
FY15 Net Cash/Share (Rmb)
0.28
PRICE CHART YANGZIJIANG SHIPBUILDING
(lcy)
• Lower HTM income. Group turnover declined 14% yoy to Rmb3,043b, primarily due to lower income from held-to-maturity investments (HTM). Shipbuilding-related revenue – accounting for 90% of group revenue - increased 11% yoy to Rmb508m while income from HTM fell 55% yoy to Rmb251m. Income from micro finance declined 16% yoy to Rmb25m. Apart from lower HTM investments in 1Q15, the lower HTM income this quarter was due to 1Q14 having some HTM investments that earned exceptional high returns.
(%) YANGZIJIANG SHIPBUILDING/FSSTI INDEX
1.50 1.40
120
1.30 110 1.20 100 1.10 90
1.00 0.90
KEY FINANCIALS Year to 31 Dec (Rmbm) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (fen) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)
130
80
100
2013 14,339 4,694 4,409 3,096 3,096 80.8 8.5 1.5 5.5 3.6 21.6 19.8 19.5 18.6 -
2014 15,354 4,139 3,709 3,483 3,483 90.9 7.5 1.3 6.2 3.9 22.7 10.1 16.9 18.2 -
2015F 16,715 4,396 3,882 3,150 3,150 82.2 8.3 1.2 5.9 3.6 18.8 (4.7) 18.1 14.6 3,006 1.05
2016F 15,224 4,227 3,661 3,130 3,130 81.7 8.4 1.1 6.1 3.6 20.6 (12.9) 17.1 13.8 3,105 1.01
2017F 18,578 4,776 4,157 3,313 3,313 86.5 7.9 1.0 5.4 3.8 17.8 (18.9) 22.7 13.9 3,232 1.02
Volume (m) 50 0
May 14
Jul 14
Sep 14
Nov 14
Jan 15
Mar 15
May 15
Source: Bloomberg
ANALYSTS Nancy Wei +65 6590 6628
[email protected] Foo Zhiwei +65 6590 6626
[email protected]
Source: YZJ, Bloomberg, UOB Kay Hian
Refer to last page for important disclosures.
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HISTORICAL ORDERBOOK
Source: YZJ)
• Core shipbuilding gross margin down 3ppt but still healthy. Within the shipbuildingrelated business, 85% of its 1Q15 revenue was contributed by the core shipbuilding business, 13% came from trading and 2% from others. Shipbuilding-related segment’s gross margin was 18%, +2ppt yoy. However, within the segment, core shipbuilding gross margin was 21%, -3ppt yoy. While lower, it is still healthy. • Stable HTM goss margin despite lower income. 1Q15 HTM gross margin was flat at 94% despite a halving of income, while micro finance gross margin was 94%, -2ppt.
Monday, 04 May 2015
SEGMENTAL BREAKDOWN Year to 31 Dec (Rmbm) Revenue breakdown Shipbuilding Segment - Shipbuilding - Trading - Others Held-to-Maturity Investment Micro-financing Gross Profit Breakdown Shipbuilding Segment - Shipbuilding - Trading - Others Held-to-Maturity Investment Micro-financing GP Margin Breakdown (%) Shipbuilding Segment - Shipbuilding - Trading - Others Held-to-Maturity Investment Micro-financing
1Q15
1Q14
yoy % chg
2,751 2,327 355 68 266 26
2,927 1,842 989 96 597 30
(6) 26 (64) (29) (55) (14)
508 484 3 21 251 25
457 433 20 4 562 29
11 12 (84) 371 (55) (16)
21 1 30 94 94
24 2 5 94 97
-3 ppt -1 ppt 25 ppt n.m. -2 ppt
Source: YZJ
HELD-TO-MATURITY (HTM) ASSETS
STOCK IMPACT • Smooth sailing amid a difficult shipping environment. This is a testament to YZJ’s superior management. Current shipbuilding orderbook stands at US$4.6b for 114 vessels (end-14: US$4.8b; 1Q14: US$5.2b) - 20 containerships worth US$1.43b, 92 bulk carriers worth US$3.05b and 2 LNG carriers worth US$0.13b. Contract wins ytd total US$0.37b (2014: US$1.8b, 2013: US$2.9b). These include US$135m contracts announced in February for two LNG carriers. YZJ has entered into agreement with Seaspan Corp for the options of six additional 10,000-TEU containerships. In addition, there were two options with a total contract value of US$238m exercised and effective in Apr 15. These options relate to two 36,500-dwt bulk carriers and two 10,000-TEUs containerships. Management is guiding total contract wins of S$2b for 2015.
Source: YZJ
HTM ASSET BREAKDOWN
• Still scaling back on HTM investments despite a higher figure in 1Q15. YZJ still maintains its target of reducing its HTM investment to below Rmb10b. Management said while total HTM investments have increased to Rmb11.7b as of end-1Q15 from Rmb10.8m as of end-14, it should not be construed as a change in strategy. In the long term, YZJ intends to selectively and carefully shift some of these investments to professional-run funds that focus on government-promoted industries. Thus far, Rmb19m have been invested in such funds. YZJ will ultimately still have final control as it holds a golden vote. • Higher exceptional income in 2016. Management is guiding the recognition of Rmb400m advances from ship-owners in contracts that had been cancelled in 2015. EARNINGS REVISION/RISK
Source: YZJ
CONTRACT WINS
• Maintaining 2015-16 net profit forecasts but cutting 2017 forecast by 6%. We cut our contract win assumptions from US$3.0b p.a. to US$2b, US$2.5b and US$3.0b for 201517 respectively. Despite this, our 2015-16 forecasts remain intact because of higher other income and gains, and lower administrative and interest expenses. However, our 2017 net profit forecast is reduced by 6%. VALUATION/RECOMMENDATION • Maintain BUY and raise target price from S$1.39 to S$1.67, based on 1.2x 2016F P/B (previously 1.2x 2015F). YZJ has proven its leadership among non-SOE shipyards throughout the years with its strong order win and project execution capabilities and a robust balance sheet. The stock is expected to pay a decent annual dividend yield of 3.63.8%.
Source: YZJ
SHARE PRICE CATALYST • More newbuild orders and higher newbuild prices.
Refer to last page for important disclosures.
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PROFIT & LOSS Year to 31 Dec (Rmbm) Net turnover EBITDA Deprec. & amort. EBIT Total other non-operating income
Monday, 04 May 2015
BALANCE SHEET 2014
2015F
2016F
2017F
15,354
16,715
15,224
18,578
4,139
4,396
4,227
4,776
430
514
566
3,709
3,882
481
400
Year to 31 Dec (Rmbm)
2014
2015F
2016F
2017F 6,880
Fixed assets
6,117
6,423
6,678
Other LT assets
8,899
8,879
8,859
8,838
619
Cash/ST investment
5,978
12,486
11,602
13,555
3,661
4,157
Other current assets
19,784
20,605
19,731
21,699
600
300
Total assets
40,778
48,393
46,870
50,972
8
0
0
0
ST debt
5,414
5,414
5,414
5,414
Net interest income/(expense)
(245)
(243)
(248)
(210)
Other current liabilities
9,950
11,066
10,371
11,975
Pre-tax profit
3,953
4,038
4,013
4,247
LT debt
2,636
6,000
3,000
3,000
Tax
(472)
(888)
(883)
(934)
Other LT liabilities
1,702
2,712
2,698
2,823
20,473
22,598
24,784
27,157
603
603
603
603
40,778
48,393
46,870
50,972
2014
2015F
2016F
2017F
Associate contributions
Minorities
2
0
0
0
Net profit
3,483
3,150
3,130
3,313
Minority interest
Net profit (adj.)
3,483
3,150
3,130
3,313
Total liabilities & equity
2014
2015F
2016F
2017F
Year to 31 Dec (%)
Operating
9,082
4,726
3,614
3,482
Profitability
Pre-tax profit
3,953
4,038
4,013
4,247
EBITDA margin
27.0
26.3
27.8
25.7
Tax
(472)
(888)
(883)
(934)
Pre-tax margin
25.7
24.2
26.4
22.9
430
514
566
619
Net margin
22.7
18.8
20.6
17.8
0
0
0
0
ROA
8.3
7.1
7.1
7.2
5,331
(127)
185
(416)
ROE
18.2
14.6
13.8
13.9
57
1,432
(19)
177
CASH FLOW Year to 31 Dec (Rmbm)
Deprec. & amort. Associates Working capital changes Non-cash items Other operating cashflows
Shareholders' equity
KEY METRICS
(217)
(243)
(248)
(210)
Growth
(1,364)
(801)
(801)
(801)
Turnover
7.1
8.9
(8.9)
22.0
(729)
(801)
(801)
(801)
EBITDA
(11.8)
6.2
(3.8)
13.0
0
0
0
0
Pre-tax profit
(14.4)
2.2
(0.6)
5.8
(875)
0
0
0
Net profit
12.5
(9.6)
(0.6)
5.8
Proceeds from sale of assets
124
0
0
0
Net profit (adj.)
12.5
(9.6)
(0.6)
5.8
Others
116
0
0
0
EPS
12.5
(9.6)
(0.6)
5.8
(6,502)
2,582
(3,697)
(729)
(960)
(1,025)
(945)
(939)
0
0
0
0
Debt to total capital
27.6
33.0
24.9
23.3
7,161
1,000
1,000
1,000
Debt to equity
39.3
50.5
34.0
31.0
(12,684)
2,364
(4,000)
(1,000)
Net debt/(cash) to equity
10.1
(4.7)
(12.9)
(18.9)
Interest cover (x)
16.9
18.1
17.1
22.7
Investing Capex (growth) Capex (maintenance) Investments
Financing Dividend payments Issue of shares Proceeds from borrowings Loan repayment Others/interest paid
(19)
243
248
210
Net cash inflow (outflow)
1,216
6,507
(883)
1,953
Beginning cash & cash equivalent
4,762
5,978
12,486
11,602
0
0
0
0
5,978
12,486
11,602
13,555
Changes due to forex impact Ending cash & cash equivalent
Refer to last page for important disclosures.
Leverage
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Monday, 04 May 2015
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Monday, 04 May 2015
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