Yangzijiang Shipbuilding's net profit dipped 8% to RMB811.7m

Here's what to blame.

According to OCBC Investment Research, Yangzijiang Shipbuilding (YZJ) reported a 12% YoY rise in revenue to RMB4.4b and a 8% decrease in net profit to RMB811.7m in 2Q13, such that 1H13 net profit accounted for about half of OCBC's full year estimates, within expectations.

Here's more:

Gross margin in the shipbuilding related segment dropped from 24.2% in 2Q12 and 25.9% in 1Q13 to 20.6% in 2Q13, while gross margin in the group’s investment division remained high. 

Despite stiff competition in the shipbuilding industry, YZJ secured 27 effective shipbuilding contracts worth about S$1.01b in 1H13. In addition, four more options were exercised in Jul, valued at about US$103.7m.

We are still estimating single-digit gross profit margins for these contracts, as the Chinese shipbuilding industry is currently in a low-margin period which may last for at least the next 12-18 months.

On a brighter note, payment terms have not deteriorated compared to the last quarter, with 20% upfront payment and 80% upon delivery for YZJ.

Still banking on the financing business. YZJ continued to increase the amount invested in held-to-maturity assets from RMB11.4b in 4Q12 to RMB12.2b in 2Q13, and management reminds investors that this has been the reason why the group has been able to weather the shipbuilding crisis relatively better than peers.