Excerpts from CGS-CIMB report
Analyst: LIM Siew Khee
■ We were surprised by the record delivery of 20 vessels in 2Q18. Group revenue ofRmb7.9bn was 60% higher than our expectations.
■ Shipbuilding margin of 21% was broadly in line with our expectation of 20%. There were 10 large vessels that were part of the delivery.
■ Earnings were also boosted by some one-offs - Rmb101m forex gain, impairment losses of trade/other trade receivables (Rmb229m) and HTM (Rmb133m).
|Maintain Add. YZJ proved that it is set apart from Singapore peers and did not need HTM income to outperform. Our SOP TP is up slightly to S$1.29 (from S$1.27).
-- Lim Siew Khee (photo),
20 vessels delivered, including 10 very large ones
Shipbuilding-related revenue grew 63% qoq and 120% yoy to Rmb7.6bn, thanks to the delivery of 20 vessels and accelerated progressive construction of larger containerships.
The delivery included 10 large vessels (2 units of 400k dwt bulk carriers, 5 units of10,000TEU containerships and 3 units of 11,800 TEU containerships). Shipbuilding-related revenue was also boosted by Rmb2.2bn trading revenue (+35% qoq, +98% yoy).
Shipbuilding margin at 21%, surpassing our 20% forecast
The delivery of large vessels secured at better pricing and margin and stronger topline helped to boost shipbuilding GM to 21% (1Q18: 17%) and above our expected 20%.
There was a slight reversal of Rmb14m of expected losses on construction contracts previously provided in FY17 (read: more room for write-backs ahead).
With this set of results, we up our GM expectations for FY18 to 19% and 17% for FY19F (from 15%).
Higher yield from HTM
Interest income from financial assets held to maturity (HTM) of Rmb386m (+28% qoq,+13% yoy) is in line with a higher interest rate environment albeit HTM assets stood steady qoq at Rmb12bn. There was an increase in investment in government-related agencies (16% of collaterals vs. 14% in 1Q18) and shares (2Q18: 36% vs.1Q18: 34%).
Annualised yield on portfolio is estimated at 10.8% in 1H18 vs. 9.4% in FY17. This is inline with management’s guidance of renewing some low-risk government-link notes atc.12% vs. 8% in previous years. YZJ took in Rmb133m of HTM impairment losses in2Q18 (1Q18: reversal of Rmb44m).
|Secured US$980m of contracts YTD, US$4.1bn order book
YZJ secured 22 vessels YTD, which included some large vessels - 10 units of 82,000DWT, 2 units of 180,000DWT, 2 units of 208,000DWT bulk carriers, 2 units of 2,400TEU, 5 units of 12,690TEU containerships, and 1 unit of 83,500DWT combination carrier.
YTD order book stood at US$4.1bn (114 vessels), to keep the yard facilities at a healthy utilisation rate up to 2020. We keep our expected orders at US$1.8bn for FY18F.
Net cash, cheap valuations, Rmb1.14bn provision balance unused
Net cash stood at c.Rmb4bn, which should sustain the dividend yield of 4.7%. YZJ is one of our O&M preferred picks as it is trading at trough valuations (0.6x CY18 P/BV), with potential for positive earnings surprise.
It has Rmb1.14bn of unutilised provision for expected losses which could be reversed in the coming quarters, given the weakness in Rmb. Our EPS is up by 1-18% for FY18-20F to reflect the strong 2Q18, higher HTM income and margins ahead.
Our TP is up slightly, still based on SOP of shipbuilding (0.8xCY18F P/BV, -0.5 s.d. to 5-year mean) and HTM (1x CY18 P/BV).
Catalysts could come from stronger orders, margins and earnings. Plunge in shipbuilding activities from trade war is a risk.