Yangzijiang Shipbuilding reports 3Q18 net profit fell 10 percent amid higher expenses

Singapore five-dollar note Photo by Leslie Shaffer

Yangzijiang Shipbuilding reported on Wednesday that its third quarter net profit fell 10 percent on-year to 778.63 million yuan amid higher expenses, but it still beat some analysts’ forecasts.

That beat a forecast from CGS-CIMB for net profit of 700 million yuan, with the gross margin coming in ahead of its forecast for 16.5 percent. It was also ahead of the consensus forecast of 745.0 million yuan, according to the CGS-CIMB report. DBS had forecast earnings of 700 million yuan to 800 million yuan for the quarter.

Revenue for the quarter ended 30 September rose 23 percent on-year to 5.37 billion yuan, it said in a filing to SGX after the market close on Wednesday.

Shipbuilding revenue in the quarter fell slightly to 2.71 billion yuan from 2.8 billion yuan in the year-ago quarter as only six vessels were delivered in the quarter, down from nine in the year-ago period, but the vessels were large and higher value, it said.

Trading activity revenue rose to 2.12 billion yuan from 1.27 billion yuan in the year-ago period, it said.

Revenue from other shipbuilding-related businesses, such as shipping logistics and chartering and ship design services, was 149 million yuan in the quarter, up from 65 million yuan in the year-ago period, on a higher charter rate and charter income from four additional vessels after an acquisition this year, it said.

Gross profit rose 49 percent on-year to 1.00 billion yuan in the quarter, while the gross profit margin rose to 19 percent from 15 percent in the year-ago quarter, Yangzijiang said. The margin increase was mainly due to a stronger U.S. dollar against the yuan and a reversal of 152 million yuan of previous provisions for expected losses on construction contracts, which were made in anticipation of yuan-strength-related losses, it said.

Administrative expenses surged more than four times in the quarter to 420 million yuan from 94 million yuan in the year-ago period on an additional impairment loss of 333 million yuan on financial assets, it said.

Finance costs in the quarter increased to 51 million yuan from 20 million yuan in the year-ago quarter, mainly on a revaluation loss of 18.6 million yuan on Singapore dollar borrowings due to the Singapore dollar appreciating against the yuan at the end of the third quarter, compared with a revaluation gain of 16 million yuan in the year-ago quarter, it said.

For the nine-month period, net profit rose 5 percent on-year to 2.37 billion yuan, while revenue increased 42 percent on-year to 18.29 billion yuan, Yangzijiang said.

Outlook

The company had a cautiously optimistic outlook.

“The shipbuilding market is still in the recovery phase post the recession experienced in the last few years,” Yangzijiang said. “The growth of e-commerce, China’s Belt and Road initiative, and International Maritime Organization rules and regulations on vessel emission standards are all expected to support the shipbuilding demand for high-tech, environmentally-friendly and energy-efficient vessels.”

But it added, “With the growing uncertainties in global shipping volume and economic growth due to the trade tensions between U.S. and China, the pace of new shipbuilding order placement will become less predictable.”

However, it noted that trades appeared to be redistributed among countries, not disappearing, with shipping demand intact.

In the nine-month period, 796 new shipbuilding orders were placed globally, down 13.6 percent by number, but up 6.6 percent by DWT, from the year-ago period, it said.

Yangzijiang said that so far this year it obtained new orders for 28 vessels with a total contract value of US$1.2 billion.

“In new order taking, we try to balance between order quantity and quality for optimal profitability. At the same time, we are very pleased to have made a significant step in building up the LNG related business, through the new joint venture that we set up with MES-SC and Mitsui,” Ren Yuanlin, executive chairman of Yangzijiang, said in the statement.

The outstanding order book was at US$4.1 billion at 7 November, which is expected to keep the yard facilities utilized through 2020 and provide a stable revenue stream for at least two and a half years, it said.