SINGAPORE (Mar 16): Yangzijiang Shipbuilding knows it cannot just rely on building containerships and dry bulkers alone to sustain earnings, says OCBC.
Out of the 123 vessels in the group’s order book, OCBC estimates that only 40 are profitable while the rest are challenged in terms of profitability.
In a Friday report, analyst Low Pei Han says Yangzijiang is looking for more contracts to build LNG carriers after successfully delivering two 27,500 CBM LNG carriers last year.
Although one bright spot is the construction of defence-related vessels, these contracts often go to state-owned shipbuilders which Yangzijiang is not.
The other bright spot is the cruise ship segment although Yangzijiang is unlikely to follow the footsteps of Vard's parents Fincantieri and new entrants like Wuchang Shipbuilding of China.
As early as 2016, Yangzijiang had expressed interest in the cruise ship segment although management also noted the complexity of building such vessels.
In 2016, Mitsubishi Heavy Industries withdrew from the cruise ship market after losing billions on difficulties of finding a supply chain in Asia for some of specific equipment.
Nevertheless, Yangzijiang's management started building an investment arm years ago which in FY17 accounted for 32% of gross profit.
Still, the overall profitability of the group will be impacted by trends in the USD/RMB and steel costs.
"We fine-tune our estimates and our SOTP-based fair value estimate slips from $1.49 to $1.34," says Low who is maintaining her "hold" call.
As at 11.38am, shares in Yangzijiang are up 2 cents at $1.32 or 9.5 times FY18 earnings.
