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Cruising with the ship ..Yangzijiang

Yangzijiang – Secured US$414m contracts in 2Q13 (DBS 5 July 2013)

Yangzijiang has secured 15 bulk carrier contracts amounted to US$414m in 2Q13, from customers in Europe and Asia. This brings its YTD wins to US$1.01bn, on track to meet our assumption of US$2bn for FY13. We expect these projects to yield low to mid single digit margins. In additions, Yangzijiang has a total of 51 options outstanding, worth US$2.64bn, including 22 options for containerships worth US$1.56bn and 29 options for bulk carriers worth US$1.08bn. We estimate Yangzijiang’s orderbook to stand at US3bn as of end of 1H13, taking into account the latest wins.

Separately, Yangzijiang also announced the acquisition of the remaining 49% stake in Changbo yard for Rmb110m or 0.8x P/BV. Changbo yard is temporarily closed down due to the diminishing orderbook. We understand management is firming up strategies for reactivation of Changbo yard.

On the industry outlook, the rebound of BDI to 1100 levels, dwindling of orderbook to fleet ratio below15% and attractive newbuild prices have led to the uptick in YTD contract awards (+80% y-o-y). This will likely sustain into 2H taking cue from the strong enquiry levels. The surfacing of news on shipyard closures and / or capacity cut in China is deemed positive as massive yard closures is a precursor of industry recovery. These are positive signs of early recovery phase. We are putting our Hold recommendation and S$1.02 TP under review.