Stronger earnings ahead and still cheap
Sequentially stronger performance ahead
1H22 profit rose 32% y-o-y. Yangzijiang’s shipbuilding related net profit rose 32% y-o-y to Rmb1.17bn in 1H22, on revenue growth of 70% y-o-y. This formed ~48% of our full year estimate
There were 35 vessels delivered in 1H22, compared to 23 vessels in the same period last year, on track to make record deliveries of 70 vessels this year
Shipbuilding gross margin improved sequentially to ~12.8% in 1H22, 2ppts higher than 10.8% in 2H21, though still slightly lower than 13.5% in 1H21, as group executed the remaining lower margin old projects, and impacted by high steel price and weaker USD (which offset by forex gains below the gross profit line) during the period.
Nevertheless, revenue and margins are expected to expand further, on execution of mostly higher value and margin new orders secured since end 2020 from 2H22 onwards especially into 2023 when Yangzijiang recognizes the bulk of the profits closer to delivery of these vessels. In addition, the recent favourable forex and steel cost also bode well for further margin expansion in 2H22. The bulk of these orders has factored in high steel prices of over Rmb6000/t and the company has hedged its USD exposure at Rmb6.6-6.8.
Management expressed confidence on earnings growth ahead with gross margins climbing steadily and probably reaching a new high in this cycle.