Yangzijiang Shipbuilding to face its 'most trying times' in 2H13-1H14

Its shipbuilding business gets depleted.

According to Maybank Kim Eng, Yangzijiang Shipbuilding is expected to maintain stable profitability at the gross level (~24-26% segment gross margins) for its shipbuilding business.

Maybank's forecast is for CNY707m (-20% YoY, -2% QoQ) in PATMI. YZJ will enter into its most trying times between 2H13 to 1H14 as its shipbuilding orderbook gets depleted.

Here's more:

YZJ has maintained its rationality in the shipbuilding business, refusing to take any orders that are loss-making. Instead of using aggressive pricing to secure jobs, it instead sought to counter the downturn through the micro-financing business and investments in held-to-maturity assets.

This did not go down entirely well with many investors but has kept the company afloat.

YZJ has one of the strongest balance sheets and has good track record for execution. It recently secured a batch of new orders worth USD414m, bringing YTD order wins to about USD1.01b. It still has 51 options worth USD2.64b outstanding.

Valuations are already at a low among the Chinese shipbuilders, and we do not see much downside from here even if the sector de-rates.

However sector weakness will mean that the stock price would continue to be range bound.