Yangzijiang hit by Daiwa downgrade

China yuan coins

Daiwa downgraded Yangzijiang Shipbuilding to Hold from Outperform despite fourth quarter earnings beating its forecast, as it pointed to the recent share price rise and lower-than-expected new order wins.

“Following a strong share-price performance over the past six months, we now see YZJ as fairly valued amid a challenging outlook for the global shipping sector, which has negatively impacted ship owners’ propensity and willingness to place new orders,” Daiwa said in a note on Friday.

The investment bank noted that earnings came in “significantly higher” than its forecasts on various one-offs. Yangzijiang Shipbuilding reported on Friday its fourth quarter net profit rose 47 percent on-year to 1.07 billion yuan, despite lower revenue, amid lower expenses and the reversal of an impairment loss.

But Daiwa lowered its estimate for new order wins for 2019-20 from US$1.8 billion a year to US$1.5 billion amid deteriorating container and dry-bulk markets.

That was after new order wins of US$1.46 billion in the previous year missed the previous guidance for US$1.8 billion, Daiwa said.

While Daiwa raised its 2019-20 revenue forecasts by 2-4 percent on expectations higher trading revenue will more than offset weaker shipbuilding revenue, the investment bank cut its 2019-20 earnings per share forecasts by 5-10 percent on lower core shipbuilding gross profit margin assumptions.

Daiwa said its earnings per share forecasts were around 6-7 percent below consensus on its lower profitability assumptions for the shipbuilding segment.

It cut its target price to S$1.37 from S$1.42.

The stock ended Monday down 0.69 percent at S$1.43.

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