Yangzijiang's Q2 profit falls 60%

Singapore

YANGZIJIANG Shipbuilding (YZJ), on posting a 60 per cent drop in Q2 net profit, said before trading closed on Friday that ongoing efforts are being made to trim costs in its core shipbuilding business, while the group is looking to further diversify its revenue stream to tide over a protracted downturn in the maritime sector.

Flagging a report by leading brokerage and research house, Clarksons, the Chinese shipbuilding group said sentiments for the shipbuilding industry remain weak, with global outstanding shipbuilding orders seen falling to 100 million compensated gross tonnes over the first half of 2016, the lowest level since June 2013.

Amid the industry downcycle, YZJ's chairman Ren Yuanlin maintained in a statement issued to The Business Times that the shipbuilding group's order book continues to back up its revenue stream and provides good earnings visibility.

While not spared the topline pressure from reduced shipbuilding activity, YZJ remained in the black, unlike some of its Chinese shipbuilding peers. The group's Q2 net profit came in at 415.4 million yuan (S$82.9 million), albeit 60 per cent lower compared with a year ago, as revenue fell 48 per cent to 2.99 billion yuan.

Earnings per share for Q2 was 10.84 cents, down from 26.9 cents. This comes on the heels of fewer newbuilding deliveries: its flagship shipbuilding unit delivered seven vessels in Q2, compared with 11 for the corresponding period in FY15.

Shipbuilding, however, continues to contribute to the bulk of the group's Q2 revenue with a turnover of 1.81 million yuan, down 52 per cent from last year.

YZJ's flagship division managed to secure US$600 million newbuilding orders so far, just under a quarter of its US$2.5 billion annual target for FY16.

These include six 400,000- deadweight-tonne very large ore carriers worth US$510 million announced in April and further orders secured in July for four 1,800-teu (20-foot equivalent unit) containerships plus options for eight similar vessels.

YZJ was also not spared cancellation or deferment of its shipbuilding order book as chartering activity slowed across almost all commercial shipping asset classes. But the Chinese shipbuilder managed to secure buyers in the resale market for eight out of 10 of the newbuild orders that were announced as terminated in Q4 FY15 and Q1 FY16. Work has not commenced on two other remaining vessels, the listed group said.

In response to the industry slowdown, YZJ retrenched 20 per cent of its initial 20,000-strong workforce in its shipbuilding division. As a result, Q2 shipbuilding cost almost halved to 1.38 billion yuan compared with 3.2 billion yuan last year.

Shipbuilding gross margin was also higher at 24 per cent for Q2, compared with 15 per cent a year ago, helped by a reversal of 63 million yuan in warranty provision and appreciation of the US dollar against yuan. In addition to the shipbuilding decline, YZJ's revenue contributions from its other business interests declined across the board.

The shipbuilding group announced in June a further diversification of its portfolio through injecting, via a wholly-owned subsidiary, one billion yuan into an investment holding company, in Jiangsu, China.

Through Jiangsu Yangzijiang Shipbuilding Co, the group picked up 11.63 per cent equity interest as a co-founder in Jiangsu Non-state-owned Investment Holding Co (JNIHCO).

BT understands JNIHCO, as a public-private-partnership vehicle, will look into among others investing in shipbuilding-related businesses in China.

YZJ maintained, however, that shipbuilding will remain its core. Acknowledging the outlook for shipbuilding remains hazy through to the end of 2017, Mr Ren believes YZJ "will be in a good position to catch the wave (of recovery) when it happens".

As at June 30, YZJ has an outstanding order book of US$4.7 million, comprising 89 vessels, that will keep its yards occupied up until 2018-19.

Shares in YZJ closed at 87 cents on Friday, down 0.5 cent.