Will YZJ stay afloat amid the sinking shipbuilding market?

Seven years of market dominance is key.

Thanks to its market dominance and hefty cash pile, Yangzijiang Shipbuilding (YZJ) is likely to remain unsinkable despite the harrowing state of the shipbuilding industry.

According to a report by OCBC, YZJ has been churning out a net profit of at least RMB2b per year for the past seven years, and was in a net cash position in the first quarter of 2016.

Moreover, the trend of ship owners’ inclination to order at fewer shipyards portends further industry consolidation. On top of this, the Chinese government has identified a “white list” of shipyards (which include YZJ) that would enjoy policy support like bank credit and export tax rebates.

OCBC also notes that based on news reports and channel checks, there are now only roughly 100 yards that have active day to day operations, and this figure is likely to dwindle further over time.

Further, with any consolidating industry, the only firms left standing would get to enjoy the enlarged market share over time. Cash-strapped and therefore cautious ship-owners are reluctant to place orders with unknown and less reputable yards. This plays to YZJ’s advantage, as its established track record, solid execution capability and hefty war chest enable it to lure in customers.