The absence of new order inflow in H1 did not come as a surprise, and YZJ is focusing instead on securing the orderbook at hand. Its orderbook of 139 vessels worth US$6.1bn as at end-June will fill the production schedule till mid-2012, based on the current delivery schedule. Meanwhile, YZJ is also accommodating customers’ requests for late delivery of completed vessels and/or change in the vessel type.
As overcapacity for the shipping and shipbuilding industries is likely to worsen, we believe risks such as few new orders, order cancellation, and late payment etc will likely increase. Only established yards such as YZJ, with a track record in operation and financial strength, will survive the downturn, in our view.
We raise our 2009/10/11 EPS estimates by 11%/22%/27% from Rmb0.54/0.48/0.33 to Rmb0.59/0.57/0.46 on higher margin assumptions. We raise our target P/BV from 1.3x to 2.4x by applying a 30% premium (0% previously) over the regional peer average of 1.8x P/BV to reflect YZJ’s industry leading ROE. Our new price target of S$1.03 suggests 8.4x 2010E PE and 6.3x EV/EBITDA versus the peer average of 8.6x and 6.7x, respectively.
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