Yangzijiang posts 1% fall in Q3 profit

Singapore

YANGZIJIANG Shipbuilding reported on Friday that its net profit for the third quarter ended Sept 30, 2014, slipped one per cent to 811.19 million yuan (S$172 million) due to lower gross profit, other income and other gains.

Earnings per share were 21.17 fen, compared to 21.42 fen. Revenue, however, rose 2 per cent to 3.74 billion yuan. Shipbuilding-related segment remained its core revenue driver, contributing about 88.4 per cent.

The group's shipyards delivered eight vessels in the third quarter, unchanged from year-ago period. Its outstanding shipbuilding order book stood at 114 vessels, with a total value of US$4.6 billion.

The Chinese yard said its gross profit margin for the shipbuilding business stayed healthy at about 21 per cent in Q3, despite the challenging operating environment. This was primarily due to the construction and delivery of the first batch of 10,000 TEU containerships with higher contract prices and margins.

Overall group's gross profit and gross profit margin declined marginally as it delivered five smaller and lower-margin vessels in Q3 and also as the amount of contribution from the lower margin trading business increased.

Cash and cash equivalents increased to 4.06 billion yuan from 2.64 billion yuan due to the net cash provided by operating activities of 1.86 billion yuan.

Yangzijiang said it has been listed in the first batch of "White List" rolled out by the Chinese government to enjoy favourable policies and to enhance market position. It expects policy framework to change the landscape of the shipbuilding industry in China. According to China Association of The National Shipbuilding Industry, new ship prices remain subdued as the shipbuilding market is still facing challenging conditions.

"An array of policies has been introduced to tackle the overcapacity in the industry and promote the restructuring and upgrading; also, as weak players are shaken out in the market downturn, government has introduced increasingly strict barriers to entry. With our strong financial strength and overall capabilities, we are well-positioned to take advantage of the consolidation process," Yangzijiang said.

In order to deal with the adverse market conditions and reduce volatility in earnings, the group adopted an interim strategy to deploy the idle cash and invest in non-shipbuilding-related segments, such as held-to-maturity (HTM) financial assets. While these segments effectively brought in revenue, it has caused concerns on its risk profile.

Yangzijiang said it would control the HTM investments and also reduce the investments in non-shipbuilding businesses and cut investments in property businesses. "The group will continue to take actions at appropriate times to gradually shift the focus back to its core shipbuilding businesses," it said.

Shares of Yangzijiang closed down half a Singapore cent to end at S$1.150 on Friday.