From DBS:-
Solid management
Story: Yangzijiang (“YZJâ€) is the largest private containership builder in China and ranked among the top ten globally.
Point: YZJ’s orderbook stands at US$6.8bn, with completion stretches up to 2011. Management expects new orders to halve from US$5.0bn to US$2.2bn this year.
YZJ’s overall risk management and execution have been impressive thus far. The Group is expected to squeeze in four additional vessel deliveries in 2009 on the back of improved efficiency and resultant higher productivity at its new yard.
This would help to bolster its profit margins next year, as these vessels were priced at over a 30%
premium because of the shorter lead-time. The Group has also done a great job in managing RMB
appreciation, evidenced by the net forex gains reported since 2006.
Relevance: Unfortunately, the outlook for shipbuilding industry is murky. Shipbuilders are facing tough times ahead amidst strengthening RMB against USD and rising steel prices. While we believe YZJ is proactive in currency hedging, the execution of its record high order backlog remains a concern.
With 30% of YZJ’s order book exposed to forex fluctuations and the risk of high steel prices affecting its earnings from 2H09 onwards, the risk to forecasts is high beyond 2009.
Maintain Hold and fair value of S$1.45, still pegged to 14x FY09F PE.