YANGZIJIANG SHIPBUILDING: Breaks into hot VLGC market

"We succeeded because we did not make any major error like chasing after oilrig contracts," said Executive Chairman Ren Yuan Lin. NextInsight file photo"There are only one or two PRC yards with the capability to build VLGC vessels even though there is huge domestic demand for them," said Yangzijiang's Executive Chairman, Mr Ren Yuan Lin, at its results briefing on Wednesday morning.

Even though global demand for seaborne transportation via VLGC vessels is not as large as for containerships and bulk carriers, the Group ventured into VLGCs to meet China's huge demand for transportation of natural gas.

In the past, US trade sanctions caused Iran to rely heavily on energy exports to China (as well as shipping via China to Europe and Asia) for fiscal revenue. Demand for LNG carrier vessels was also boosted by China's huge LNG investments in Iran.

Now, there is talk that international financial and trade sanctions against Iran will be lifted by the first quarter of next year (subject to its nuclear disarmament).  Since Iran has one of the world's richest natural gas fields, LNG transportation demand could surge when the sanctions are lifted.

Secondly, China's 13th 5-year Plan promotes financial and policy support of shipyards with practices and products that are technologically advanced and environmentally friendly. Having VLGC vessels as a product places Yangzijiang in a position to benefit from such government policies, as natural gas has the lowest carbon dioxide emission per unit of energy produced from fossil fuels. Large vessels also provide economies of scale for the vessel owner.

The recently secured orders were two 84,000 cubic-meter VLGCs placed by PRC state-owned commodities trading company, Shanghai Zhenrong Energy, contracted at about US$76 million each. Deliveries are scheduled to take place in 2018. During September to October 2015, the Group secured shipbuilding contracts for 12 vessels with a total contract value of US$730 million.

In addition to the two VLGC vessels, the orders are as follows: four 11800-TEU containerships, four 3800-TEU containerships, two 1900-TEU containerships. This brings orders secured year-to-date to US$1.63 billion. The Group had an outstanding order book of US$4.8 billion as at September 2015, comprising of 107 vessels. The size of its order book is among the top 3 in China and top 10 globally.

The shipbuilding industry remains challenging, with a 45% year-on-year decline in global shipbuilding orders during the first 3 quarters of 2015. The Group posted a decline in 3QFY2015 revenue by 10% year-on-year to Rmb 4.1 billion.

Profit attributable to shareholders declined by 16% to reach Rmb 680.7 million. This was mainly due to lower margin contracts secured during the shipbuilding industry downturn.