Yangzijiang Shipbuilding: Wary of a False Dawn; Cut to Sell, $1.135 - TP
$0.98
YZJSGD SP | Mkt Cap USD3.5b | ADTV USD13.2m
Ø Cut to contrarian SELL, SOTP-based TP at SGD0.98. We do not see a broad-based recovery for Chinese shipbuilders yet as (1) rise in BDI was led mainly by rate hikes for capesize vessels, (2) container freight rates remain weak, and (3) yard overcapacity issue lingers. We fear that
YZJ’s recent rise in share price may meet with downward pressure when shipping market recovery story disappoints.
Ø We do not see shipbuilding prices picking up significantly yet. While there may be some short-term spike in new orders, we still see margin contraction and EPS decline for YZJ’s core shipbuilding business for FY13-15F as higher margin contracts are depleted from orderbook.
Ø We agree YZJ would be the best proxy to ride a shipbuilding recovery cycle, but we disagree that this is the turn. We think that the recent lift in valuation is fragile as it is not supported by future EPS growth with margin decline still in the cards.
I generally agree with the big picture assessment that there are dark clouds, and the boom years of fat margins are not here yet. I am also agreeable that next few quarters might disappoint.
But I think we should take a report with a heavy does of salt. Let me explain why.
They have a downgrade target price of $0.98, they would have more credibility had it been a HOLD call all this while with a target of $0.98.
But from a cut from $1.135 when the orders from the next 12 months is already in the orderbook since 2011? How did you get $1.135 at the first place, was it a mistake at the first place? If other facts like increase in price of steel leading to increase in cost will weaken earning going forward in the next 12 months, is a reason cited, then I would say its quality analysis. Hello, how would BDI affect YZJ earnings? It would affect it future order books that will affect earnings from 2015 onwards, and you are cutting your 12 months target based on that?
These analyses of calling sell, and even upgrading "buys" with higher price targets are all a slap in the face of analysts, why is YZJ a $1 call 2 months ago and $1.4 call now? either one is a serious mistake unless you can strongly justify the change. For example,HYPOTHETICAL EXAMPLES ONLY: we expect margins to fall to 15%, but they managed to hold it to 20% and the property devt arm is up and going earlier than expected.(increase target price) Or, CHina is clamping down on shadow banking and wealth management products more agressively than we expect, and we are concerned that there might be some write down on HTM.(Reduce Target price)
BEWARE of all analysts that quote recent orderbook wins as justification to change in 12 months price target. The overriding motive is for you to trade so that they earn commission.
Investing community deserved better analysis for professionals.
(1) rise in BDI was led mainly by rate hikes for capesize vessels,
True, but panamax is increasing significantly too.
(2) container freight rates remain weak,
True.
and (3) yard overcapacity issue lingers.
Do note that the "overcapacity" accounts for the weaker yards too, if you follow order wins in china, it is highly concentrated on the SSOE shipyards and a few other big yards like rongsheng, another one in zhejiang (can't remember name), it is less than a dozen names. The overcapacity in china is already playing to an end by market forces.
We fear that
YZJ’s recent rise in share price may meet with downward pressure when shipping market recovery story disappoints.
Agree, but whats with you $1.135 target? What makes you shift goalpoles?
Ø We do not see shipbuilding prices picking up significantly yet. While there may be some short-term spike in new orders, we still see margin contraction and EPS decline for YZJ’s core shipbuilding business for FY13-15F as higher margin contracts are depleted from orderbook.
Hello, fat margins orders from 2008 and 2009 are already delievered, please stop copying and pasting from other views.
Ø We agree YZJ would be the best proxy to ride a shipbuilding recovery cycle, but we disagree that this is the turn. We think that the recent lift in valuation is fragile as it is not supported by future EPS growth with margin decline still in the cards.
No comments
SINGAPORE, Nov 13 (Reuters) - China's third-largest listed shipbuilder Yangzijiang Shipbuilding Holdings Ltd YAZG.SI is on track this year to win the most new orders since 2007, a feat unlikely to be repeated soon as it has now almost reached full capacity.
Yangzijiang, based in eastern China's Jiangsu Province, took home new orders worth $2.1 billion in the first nine months of 2013 and is poised to end the year with $3 billion worth of new orders, Chairman Ren Yuanlin told reporters.
The strong performance helped build up an outstanding order book worth $3.9 billion at the end of September, the highest in nearly two years, but that also means the company will have limited capacity for new contracts from now until 2016, Ren said.
Profit margins are also likely to be squeezed as many of these outstanding orders were converted from options booked at prices that were below current market rates by as much as 10 percent, he added.
"We made a mistake by signing too many options with ship owners in March and April this year," Ren said after the company reported a six percent decline in its third-quarter net profit.
"We are asking the ship owners that want early deliveries to pay more, and adjusting our capacity to squeeze in some slots for 2015 and 2016 deliveries, to mitigate the impact."
Yangzijiang is one of the few big yards in China's shipbuilding sector that have benefited from a revival in ship orders this year, even as the global shipping industry remains troubled for the sixth consecutive year.
Only 4 percent of China's more than 1,600 yards have scored new contracts so far this year, pointing to possible consolidation in the bloated sector.
Ren said China's shipbuilding sector could face lower margins next year due to low prices, and Yangzijiang plans to diversify into a number of businesses, including trading and shipping, to reduce its reliance on ship building segment.
The company aims to reduce ship building's contribution to revenue to 60 percent within three years from above 80 percent now, Ren said.
Orders placed at Chinese yards in the first nine months of the year, in deadweight tonnage terms, jumped 80 percent from the whole of 2012, but the growth in dollar terms was a far moderate 10 percent, according to the World Shipyard Monitor published by Clarkson Research.
($1 = 6.0919 Chinese yuan)
(Editing by Miral Fahmy)
((rujun.shen@thomsonreuters.com)(+65-6403-5666)(Reuters Messaging: rujun.shen.thomsonreuters.com@reuters.net))
It has been quite a while since I last wrote. These past months, I have been busy engaging in US stocks as the liquidity and interests over in Wall Street have picked up significantly since the successful re-election of Obama.
I have been noticing keen interests in Singapore stocks since the start of 2013 and I have been accumulating stocks which I deem, would be able to ride the cycle.
Top of my list would be the S-chips which offer attractive risk-returns ratio.
I have been accumulating Yangzijiang since their offshore jackup rig announcement. I like the fact that they are working closely with the Qataris who are one of the most careful businessmen around. With Yangzijiang financial strength, I remain optimistic that the Company would ride out the shipping trough and would benefit from the spillover effects from the offshore cycle.
JES International has also been on my list as I notice that the Company has acquired some smallish offshore contracts. The margins to these contracts (last I checked with my offshore friends) are marginable (4-6%). I believe this is a transition period for the Company as they are shifting into the offshore sector.
If you notice this process took more than a year. I believe the Company will stand to benefit from this extended cycle.
MacGyer: You posted & bought JES in April at around 17 cents. Losing money on this stock still.
Will it recover from 12 cents? They have an upcoming investment in a rich mine. Is it good?
Tan Peng Hock In 2010 i vested in jes.. went to its agm, the ceo said next yr will have div else she too ashame to come to agm meeting again. After one year no div declared, i sold it and after few months jes reported heavy losses due to ship cancellation.. now they wanna raise 120mil thru shareholders again???
