Yangzijiang Shipbuilding margin squeeze still looming despite new order pick-up

As regional competition heats up.

Maybank Kim Eng said that the new wave of shipbuilding orders is expected to be driven by structural switch to fuel-efficient vessels rather than the need for new capacity, a shift that should favor Korean and Japanese shipbuilders and put pressure on Yangzijiang Shipbuilding.

"Korean shipbuilders hold the lead for such vessels while competitiveness for Japanese shipbuilders have re-emerged with the lower Yen. Therefore we do not see shipbuilding prices picking up significantly. In comparison to 2008 peak, average price is at least 30% lower currently." said Maybank.

"Thus, while there may be some short-term spike in new orders, we still see margin contraction and EPS decline for YZJ’s core shipbuilding business for FY13-15F as higher margin contracts are depleted from orderbook," it added.

One bright spot for the company is that among Chinese shipyards, it still stands out.

"This view was reinforced after our recent visit to its JNYS and Xinfu yards in Jiangsu, PRC. We witnessed vessel launch of Chinese shipyards’ first 10,000teu containership, which is being built by YZJ. This clearly demonstrates its superior expertise relative to many Chinese shipyards. It is building a total of 16 such units for Seaspan which includes an option for 9 more," said Maybank.