Larger container and bulk carrier market share, offshore marine engineering, real estate development, venture capital for pre-IPO investments. Which wildcard will help Yangzijiang sustain its stellar top line growth record in the face of stagnant vessel prices in an inflationary environment?  Above: chairman Ren Yuanlin (right) and CFO Liu Hua. File photo by Sim Kih.

LEADING PRC shipyard, Yangzijiang, has posted another year of record earnings in FY2010, with revenues growing 22% to Rmb 12.9 billion.

It delivered 48 vessels compared with 40 vessels in FY2009. Also, it acquired 51% in Changbo shipyard, which delivered 2 vessels in 4Q2010 in addition to the 48 vessels above.

Revenues from bulk carriers, which account for about two-thirds of group top line, grew 79% to Rmb 8.2 billion.

Revenues from container vessels, which account for about a third of group top line, contracted by 26% to Rmb 4.4 billion.

Gross profit margin improved 1.5 percentage points to 22.5% as its new yard gained operational efficiency and delivered bigger and higher margin vessels.

Net profit attributable to shareholders was Rmb 3.0 billion, up 23%, translating to net margins of 22.8%.  Cash reserves were Rmb 4.5 billion as at 31 Dec.


Clear and aggressive plans to face challenges head-on

”Current high margins of 20% or more may not be sustainable beyond this year,” said executive chairman Ren Yuanlin at its results briefing yesterday at Suntec City to a crowd of close to 50 analysts and fund managers.

Its major challenge now is stagnant vessel prices in an inflationary environment. Mr Ren expects labor cost to rise 20% this year, as well as higher steel and fuel costs.

A second risk factor is currency fluctuation. More than 80% of its contracts are from Germany and other European countries, as well as Canada. The Euro and USD are expected to depreciate against the Rmb over the mid term, but to-date, the shipbuilder has been successfully using currency derivatives.

At the briefing, the chairman unveiled the shipbuilder’s 5-year plan to make a quantum leap in revenue streams for top line growth so as to compensate for the expected margin decline.

According to the plan, Yangzijiang’s core business will remain in shipbuilding, with greater market share, higher vessel delivery volumes and a wider range of vessels. It also wants to become a dominant player for large vessels.

It reiterated intention to diversify into investment portfolio management, including micro-financing, derivatives and pre-IPO venture capital investments.

Upstream to Shanghai on the Yangtze River, the Wuxi city of Jiangyin is part of rapid economic growth in the Pearl Delta region.

Mr Ren also unveiled plans to foray into China’s booming real estate development sector.

Its headquarters and old yard happens to sit on prime waterfront land in Jiangyin, a city in China’s prosperous Pearl Delta region.

With China’s urban growth, local authorities want Yangzijiang to shift its heavy industrial activities away.

”Property development in China yields handsome profits. Since we are inexperienced in this, we will look for large and reputable joint venture partners,” said Mr Ren.

”The location of our old yard is to Jiangyin what the Bund is to Shanghai. The land it sits on is currently worth Rmb 4 billion,” he said.

Diversification plans still in early stage

So far, its wide-reaching plans for diversification have shown mixed results.

Huayuan, one of the ship breaking yards it acquired last year, is already operating and will contribute some income this year.  Scrap steel from the ship breaking yard is also a hedge to steel price increases.

Its takeover bid on PPL, which holds 15% in SembCorp Marine's PPL Shipyard that builds offshore drilling rigs, is being stalled by litigation between the Singapore rigbuilder and the share vendor.

Last year, Yangzijiang secured 50 new shipbuilding contracts worth US$1.38 billion.  Order books were 131 vessels valued at US$5.31 billion as at 31 Dec.

This year, newbuilding contracts worth US$147.4 million for two 4,800 TEU container vessels and two 10,000 DWT bulk carriers have already been secured.  These orders are scheduled for delivery in 2012 and 2013.


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