Yangzijiang's yards threatened by shipbuilding woes

Order book stands at 75 vessels.

According to OCBC, commercial shipbuilding remains challenging and according to the group, consolidation in the industry is now affecting mid-sized and large-sized yards.

Management updated that they have seen very few orders in the market, but this is not necessarily a bad thing for the over-supplied industry. Too many orders would just delay the eventual recovery, which management does not see happening in 2013 and maybe even 2014.

There was no vessel cessation and no effective orders secured in 3Q12. As such, YZJ’s order book stood at 75 vessels with a total value of US$3.6b as at 30 Sep 2012, of which 40% comprises orders secured pre-crisis (higher margins than newer orders).

In our view, YZJ has performed well in a very challenging environment, and we appreciate management’s desire to diversify its income sources and build an integrated marine group. However, the dearth of new orders is likely to persist longer than we expected.

We tweak our earnings estimates lower and roll forward our valuations, and based on 7x FY13F core earnings, our fair value estimate slips from S$1.03 to S$0.95.