Can Yangzijiang get back on its feet by year-end after an underwhelming 2Q?

Its order book stands at $6.5 billion at end-2016.

Despite posting a 48% revenue slump for 2Q16, Yangzijiang Shipbuilding may look forward for a better trend as more deliveries are scheduled in 2H16.

To recall, the company posted a 60% dip in its net profit to $84.37 million on the back of a 48% slide in its revenue to $607.2 million.

According to CIMB Analyst Siew Khee, progress on vessel construction in the previous quarter was slower due to deferrals and cancellations that required some reshuffling of Yangzijiang order book.

Three vessels were cancelled in the said quarter as a result of existing customers taking up vessels that were terminated in the two prior quarters.

"These vessels are near completion and will be delivered in 2H16, resulting in back-loaded revenue recognition in FY16," she said.

Currently, Yangzijiang's order book stands at $6.5 billion, comprising 42 containerships and 47 bulk containers.

However, its core shipbuilding gross margin could trend lower in the second half of the year, as it would be diluted by revenue recognised for cancelled vessels.

"Eight of the 13 cancelled vessels since 4Q15 have been resold at 25% discount, taking into account the forfeited deposit (30-40%), resulting in a c.5% gross margin. Overall shipbuilding gross margin fell qoq at 16% in 2Q16 (1Q16:18%) as ship chartering gross losses widened due to depressed bulk carriers market and freight rates," the analyst said.

Meanwhile, Yangzijiang's net gearing stood at 6% by the end of 2Q16, which is relatively stronger that those of the Singapore yards. The analyst deems this could sustain FY2016 dividend payout of at least S$0.04, translating into 4.4% yield.