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Yangzijiang Shipbuilding Group Limited (Yangzijiang)

Source: Yangzijiang

Yangzijiang is a Chinese enterprise group with shipbuilding and offshore as their core business. The company has been consistently ranked among the top five of the Chinese shipbuilding industry. Their supplementary businesses include trade logistics, ship-leasing and real estate.

FY 2018 Financial Highlights:

Source: Yangzijiang FY 2018 Annual Report

• Yangzijiang’s FY 2018 revenue rose 21% year-on-year to RMB 23.2 billion, on the back of greater volume of shipbuilding activities, higher trading volume, as well as increased revenue from shipping logistics, chartering and ship design services.
• In addition, revenue from new acquisition Shanghai Huayuan Shipping was included in this financial year.
• The company achieved a 24% year-on-year increase in FY 2018 gross profit to RMB 4.1 billion, while profit attributable to shareholders grew by 23% to RMB 3.6 billion.
• Consequently, Yangzijiang’s total earnings per share rose from RMB 0.7559 in 2017 to RMB 0.9134 in 2018.

Performance Drivers:

Source: Yangzijiang FY 2018 Presentation Slides

Yangzijiang’s strong FY 2018 financial results was mainly driven by its shipbuilding segment, while all other segments also achieved better performance for the year. Shipbuilding contributed 55% to the company’s FY 2018 gross profit, while investment income accounted for 38%. The rest of the contributions were by shipbuilding-related businesses such as shipping logistics, chartering and ship design services (5%), trading (2%) and microfinance (2%).

Performance Drivers (Positive Factors)

• Shipbuilding Business

Yangzijiang’s shipbuilding business saw a 14% year-on-year increase in revenue for FY 2018 to RMB 14.0 billion. In addition, gross profit for this business rose by 8% to RMB 2.3 billion, while gross margins were maintained at the relatively stable rate of 16.1%. For number of vessels delivered in 2018, 46 vessels were sent according to schedule, compared to the 33 vessels in 2017.

• Shipbuilding-Related Businesses

Shipbuilding-related businesses (shipping logistics, chartering and ship design services) experienced strong revenue growth from RMB 393 million in FY 2017 to RMB 581 million in FY 2018. Gross profit also more than doubled to RMB 205.2 million, while gross margin improved significantly by 15.6 percentage points to 35.3%. These positive results were largely attributed to higher charter rates in 2018, as well as the inclusion of RMB 154 million in revenue from new acquisition Shanghai Huayuan Shipping, a domestic shipping company.

• Trading Business

Yangzijiang’s trading business achieved a 30% year-on-year increase in FY 2018 revenue to RMB 7.0 billion, as well as a 52% hike in gross profit to RMB 102.0 million. This was due to a higher volume of trading business for the financial year. A gross profit margin of 1.5% was generated, which is a rate typical of this segment.

• Net Interest Income from Treasury Investments

FY 2018 net interest income from treasury investments by the company jumped by 43% year-on-year to RMB 1.5 billion. The 23.6% increase in debt investments at amortised costs to RMB 14.8 billion was the main contributor behind the increase. After subtracting operating costs of value-added taxes and levies on interest income – gross profit margin for this segment stood at 95.7%.

• Net Interest Income from Microfinance

Yangzijiang’s net interest income from microfinance surged 97% year-on-year to RMB 62.4 million in FY 2018. Gross profit margin for this segment was 99.2%, after deducting for operating costs of value-added taxes and levies on interest income.

Performance Drivers (Negative Factors)

• Associated Companies

Yangzijiang recorded a share of loss from associated companies of RMB 86 million in FY 2018, compared to the RMB 160 million share of profit recognised in FY 2017. The loss was primarily due to a mark-to-market decline in the value of assets held.

• Fleet Growth for Containerships and Dry Bulkers

A slowdown in fleet growth for both containerships and dry bulkers is expected for 2019, as compared to 2018. While containership capacity grew by 5.6% in 2018, the growth has been forecasted at only 2.9% in 2019. Although there has been a recovery in the demand for sea transportation by containerships and dry bulkers, this recovery has been dampened by trade tensions between the US and China. Uncertainty over demand for Chinese imports and global seaborne trade resulted in ship owners holding back on capital expenditure. As the majority of Yangzijiang’s vessel orders were for dry bulk carriers and containerships (97.5% for FY 2018), the company has a strategy in place to diversify into the oil & gas carrier market.

Source: Yangzijiang Annual Report 2018; The Business Times

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