Yangzijiang net profit down 12% YoY to $151.5m

Investment revenue was seasonally low.

China’s shipyard industry may further consolidate, giving Yangzijiang better opportunities for acquisition.

According to a report by RHB Group, Yangzijiang’s 1Q15 PATMI of CNY707m or $151.5m was down 12% YoY and up 11% QoQ.

The results met 20% of RHB’s earnings estimate as investment revenue was seasonally low.

Analysts at RHB say that China’s shipyard industry may further consolidate, which would cut the number of desperate competitors and potentially provide Yangzijiang with targets for acquisition.

According to the China Association of the National Shipbuilding Industry, the number of Chinese shipyards has declined to about 1,600 in 2014 from over 3,000 in 2012. Only half of these 1,600 shipyards are expected to remain in business by end-2015.

This reduction in the number of competitors would relieve margin pressure and provide Yangzijiang with potential acquisition targets to grow its capacity. We believe thecompany would target yards with: i) the capability to build large vessels, and ii) a low or zero orderbook to mitigate legacy-issue risks. Yangzijiang’s orderbook remains stable at USD4.6bn, with USD0.37bn worth of new orders YTD.

Shipbuilding margins were at 20.8% in 1Q15 vs c.20% in FY14. RHB analysts expect margins to be supported in the high-teens range, as the company continues to build higher-margin 10,000 twenty-foot-equivalent (TEU) containerships.

Going forward, Yangzijiang aims to increase the size of its containerships. The company was the only Chinese shipyard to have succeeded in the first round of bidding for contracts for some 14,000TEU containerships, squaring off against one other Japanese competitor.