Yangzijiang Shipbuilding profit down 9% to Rmb878M

Lower forex gains outweighed solid shipbuilding performance from Mainboard-listed vessel builder.

Here's more from DBS:

2Q12 slightly below. 2Q12 net profit dipped 9% y-o-y to Rmb878m due largely to lower forex gain (Rmb6.2m vs Rmb220m). Operationally, the shipbuilding segment continued to perform well with gross profits growing 25% to Rmb883m, with gross margins steady at 24%.

1H net profit amounted to RMB1.9bn, forming 46% and 49% of our and consensus FY12F estimates. We will maintain our estimate for now given that 2H tends to be seasonally stronger and there could be potential one-off gains from the relocation of the old yard. The group delivered 30 vessels in 1H, on track to meet its target of 60 vessels for 2012 (incl. 10 vessels from Changbo yard).

Our View. A strong ship in rough seas. The operating environment for the shipbuilding industry continues to be challenging with slow contract flows and heightened default and cancellation risks given the weak shipping market. Yangzijiang terminated 8 shipbuilding contracts in 2Q, its first since listing, as some of its new customers failed to meet their financial obligations. We do not expect a significant impact from these as Yangzijiang forfeited the 15% deposit collected and is likely to be able to recontract these vessels as demonstrated by its ability to recontract the three vessels that were cancelled.

Despite such a challenging market, Yangzijiang has secured 4 contracts totaling US$89m for smaller vessels – 2 units of 64k dwt bulkers and 2 units of 1,100TEU containerships (which come with 4 options). This brings YTD order wins to US$295m; orderbook stands at US$3.8bn. Yangzijiang has outstanding options for 26 units of 10k TEU containership worth US$2.6bn with Seaspan and Peter Dohle, where some could materialise in 2H, though possibly at lower prices.

Recommendation. Undemanding valuations and attractive yield. We continue to like Yangzijiang as one of the most well run Chinese shipyards.