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Third-quarter profit surge puts Yangzijiang on a roll
YANGZIJIANG Shipbuilding (YZJ) is on a roll.
Its share price hit a six-year high on Friday, with the China-based shipbuilding group having posted a 208 per cent year-on-year jump in its third-quarter net profit to 866 million yuan (S$177 million); it also surpassed its annual order target of US$1.5 billion.
On Friday, its share price closed at S$1.64, up 7.5 cents from the previous close to hit its six-year high, just as news broke that the group was raising its new-order target to US$2 billion for this year; it is also aiming for US$2 billion in new orders next year.
Executive chairman Ren Yuanlin told reporters at Friday's third-quarter results briefing that YZJ expects to deliver 46 to 50 vessels this year and next year.
But shipbuilding margins in China remain challenged by high steel prices and the Chinese yuan's appreciation against the US dollar.
YZJ thus cannot afford to rest on its laurels. The shipbuilding group needs to step up its capacity building in order to take on higher value-add contracts.
Mr Ren said in an interview with The Business Times that YZJ, being cashed up upon completion of a share placement of more than S$208 million just two months ago, is ready to check out merger and acquisition (M&A) possibilities to fast-track its capacity-building.
It is in talks on at least one possible deal, he said, without elaborating. He added that YZJ is open to deals with "other Chinese shipyards and Japanese and European technology providers".
China's shipbuilding industry has been undergoing consolidation for years now, with an increasing number of shipyards under the shadow of bankruptcy. This has opened up opportunities in more ways than one for YZJ.
At one stage, it was approached to pick up an equity stake in the financially troubled Rongsheng Heavy Industries (RSHI). The M&A deal failed to materialise, but YZJ went on to acquire the half-completed hull of a Suezmax-sized tanker being built at RSHI, which has since been renamed China Huarong Energy. The tanker, to be completed at YZJ, will offered for resale.
The acquisition of the tanker from RSHI dovetailed with the shipbuilding group's drive to diversify its order book beyond its two core segments, namely dry bulkers and container ships.
Mr Ren reiterated that YZJ's goal was to climb the value chain by taking on liquefied natural gas (LNG) and liquefied petroleum gas (LPG) shipbuilding; the aim, he said, is to grow LNG and LPG shipbuilding to 30 per cent of YZJ's overall order intake, with dry bulkers and container ships making up 40 and 30 per cent respectively.
Analysts have noted the alignment between YZJ's targeting of acquisitions of clean-energy vessel technologies and its plans to build LNG vessels.
This is timely, given that shipping companies seeking to comply with an imminent change in shipping regulations are looking at the option of using LNG, a cleaner-burning fossil fuel, for bunkering or refuelling. By 2020, the global sulphur cap mandating a 0.5 per cent limit on sulphur content in ship fuels will kick in. Mr Ren noted that more shipbuilding enquiries have come in since the International Maritime Organization said last October that the cap would be implemented.
Shipping companies unwilling to commit capital expenditure to build LNG-fuelled ships are looking into installing exhaust-gas cleaning systems (called scrubbers) on their vessels to meet the sulphur cap requirement, but Mr Ren said that even with scrubbers, shipping companies may still commission newbuilds from scratch, because scrubbers take up a lot of deck space that can otherwise be used for cargo.