In line with expectations: Strong margins though offset by

February 27, 2014
EARNINGS REVIEW
Yangzijiang Shipbuilding (YAZG.SI)
Buy
Equity Research
In line with expectations: Strong margins though offset by one-offs
What surprised us
Investment Profile
4Q13 reported net profit was RMB746mn (-8% yoy). FY13 reported net
profit of RMB3,096mn (-14% yoy) was 100%/105% of our/Bloomberg
estimates - in-line with GSe, but above consensus. 4Q13 sales were in-line,
while gross margins of 42% (GSe: 33%) surprised due to: (i) provision
write-back from successful delivery of the last batch of pre-crisis orders
and (ii) one-off rebates by steel suppliers. But the strong margins were
offset by RMB350mn provisions made as YZJ marked its ship fleet for its
chartering business to market prices. Financial investments (i.e. trust
loans) +13% qoq given RMB2.2bn short term loan and small equity
injection (vs. collateral that is 2X of the loan) into a financially troubled
listed China company (Jiangsu Zhongda New Material Group), of which
RMB1.5bn (include interest income RMB0.3bn) has since been repaid. YZJ
also secured US$260mn new orders YTD (attractive down-payment terms
of 55% for some), with US$830mn options outstanding. Looking ahead,
YZJ expects: (i) US$2bn of new shipbuilding orders (GSe: US$2.3bn); (ii) to
focus on niche mid-water floaters given the lower competition, but no
given orders guidance (GSe: US$400mn); (iii) 2014 shipbuilding gross
margins of 15-20%, but likely higher end (GSe: 18%); (iv) RMB720mn
relocation fees to be paid by the government in 2014 for their old yard.
Low
High
Growth
Growth
Returns *
Returns *
Multiple
Multiple
Volatility
Volatility
20th
Percentile
40th
60th
80th
100th
Yangzijiang Shipbuilding (YAZG.SI)
Asia Pacific Conglomerates Peer Group Average
* Returns = Return on Capital For a complete description of the
investment profile measures please refer to
the disclosure section of this document.
Key data
Current
Price (S$)
12 month price target (S$)
Market cap (S$ mn / US$ mn)
Foreign ownership (%)
EPS (Rmb) New
EPS revision (%)
EPS growth (%)
EPS (dil) (Rmb) New
P/E (X)
P/B (X)
EV/EBITDA (X)
Dividend yield (%)
ROE (%)
CROCI (%)
1.13
1.45
4,335.9 / 3,425.6
--
12/13
0.73
6.6
(10.8)
0.81
6.7
1.1
4.9
5.3
18.6
14.4
12/14E
0.52
(0.4)
(29.1)
0.75
10.5
1.1
7.5
4.1
15.3
7.5
12/15E
0.72
(1.0)
38.3
0.77
7.6
1.0
5.3
4.2
14.2
10.9
12/16E
0.78
-8.8
0.84
7.0
0.9
4.2
4.6
14.0
11.7
What to do with the stock
Reiterate CL-Buy given high leverage to commercial shipbuilding recovery.
Fine-tune 2014-15E EPS and introduce 2016E EPS. Our 12-m Director’s Cut
(EV/GCI vs. CROCI/WACC) based target price is S$1.45 (unchanged). Key
risks: (i) weaker GDP/seaborne trade; (ii) lower scrapping of new vessels;
(iii) poor execution on new products; (iv) no value accretive investments.
YZJ FY13 results summary (RMB mn)
Turnover
Gross profit
Reported net profit
Gross margins (%)
FY13
14,339
4,762
3,096
33%
FY12
14,799
4,572
3,581
31%
YoY (%)
(3)
4
(14)
4Q13
3,382
1,427
746
42%
4Q12
3,563
1,088
808
31%
Source: Company data.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Asia Pacific Conviction Buy List
YoY (%)
(5)
31
(8)
3Q13
3,668
1,087
821
30%
QoQ (%)
(8)
31
(9)
Price performance chart
1.30
1.25
1.20
1.15
1.10
1.05
1.00
0.95
0.90
0.85
0.80
Feb-13
3,900
3,800
3,700
3,600
3,500
3,400
3,300
3,200
3,100
3,000
2,900
Jun-13
Sep-13
Yangzijiang Shipbuilding (L)
Share price performance (%)
Absolute
Rel. to FTSE Straits Times Index
Dec-13
FTSE Straits Times Index (R)
3 month
(5.0)
(2.4)
6 month 12 month
20.2
17.1
20.1
23.4
Source: Company data, Goldman Sachs Research estimates, FactSet. Price as of 2/26/2014 close.
Coverage View: Neutral
Miang Chuen Koh, CFA
+65-6889-2465 [email protected] Goldman Sachs (Singapore) Pte
Wieta Anton Honoris
+65-6889 2462 [email protected] Goldman Sachs (Singapore) Pte
Ishan Sethi
+65-6889-2473 [email protected] Goldman Sachs (Singapore) Pte
The Goldman Sachs Group, Inc.
Goldman Sachs does and seeks to do business with companies
covered in its research reports. As a result, investors should be
aware that the firm may have a conflict of interest that could
affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment
decision. For Reg AC certification and other important
disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by nonUS affiliates are not registered/qualified as research analysts
with FINRA in the U.S.
Global Investment Research
February 27, 2014
Yangzijiang Shipbuilding (YAZG.SI)
Yangzijiang Shipbuilding: Summary Financials
Profit model (Rmb mn)
12/13
12/14E
12/15E
12/16E
14,338.6
(9,576.7)
(352.4)
0.0
0.0
4,694.3
(284.8)
4,409.5
258.8
(331.0)
(1.0)
0.0
4,336.3
(1,542.2)
18.5
15,304.3
(11,914.9)
(352.0)
0.0
0.0
3,359.6
(322.2)
3,037.5
271.7
(416.2)
64.0
0.0
2,957.0
(851.0)
(112.6)
20,178.0
(15,390.6)
(504.4)
0.0
0.0
4,621.5
(338.5)
4,282.9
285.3
(431.2)
70.4
0.0
4,207.5
(1,212.3)
(239.1)
22,571.6
(17,284.7)
(564.3)
0.0
0.0
5,051.7
(329.1)
4,722.6
299.6
(386.2)
77.4
0.0
4,713.4
(1,358.4)
(357.1)
2,812.6
0.0
2,812.6
283.2
3,095.9
1,993.4
0.0
1,993.4
866.2
2,859.6
2,756.0
0.0
2,756.0
192.7
2,948.8
2,997.9
0.0
2,997.9
215.6
3,213.5
EPS (basic, pre-except) (Rmb)
EPS (basic, post-except) (Rmb)
EPS (diluted, post-except) (Rmb)
DPS (Rmb)
Dividend payout ratio (%)
Free cash flow yield (%)
0.73
0.81
0.81
0.26
31.9
(22.7)
0.52
0.75
0.75
0.22
30.0
9.3
0.72
0.77
0.77
0.23
30.0
7.5
0.78
0.84
0.84
0.25
30.0
20.5
Growth & margins (%)
Sales growth
EBITDA growth
EBIT growth
Net income growth
EPS growth
Gross margin
EBITDA margin
EBIT margin
12/13
(3.1)
5.8
5.4
(13.5)
(13.5)
33.2
32.7
30.8
12/14E
6.7
(28.4)
(31.1)
(7.6)
(7.6)
22.1
22.0
19.8
12/15E
31.8
37.6
41.0
3.1
3.1
23.7
22.9
21.2
12/16E
11.9
9.3
10.3
9.0
9.0
23.4
22.4
20.9
Cash flow statement (Rmb mn)
Net income pre-preferred dividends
D&A add-back
Minorities interests add-back
Net (inc)/dec working capital
Other operating cash flow
Cash flow from operations
12/13
2,812.6
284.8
(18.5)
871.1
(7,287.8)
(3,337.7)
12/14E
1,993.4
322.2
112.6
(2,781.6)
3,002.2
2,648.8
12/15E
2,756.0
338.5
239.1
(1,171.1)
122.3
2,284.9
12/16E
2,997.9
329.1
357.1
831.0
138.2
4,653.3
Capital expenditures
Acquisitions
Divestitures
Others
Cash flow from investments
(1,030.7)
(85.4)
0.0
0.0
(1,116.1)
(650.0)
0.0
0.0
0.0
(650.0)
(650.0)
0.0
0.0
0.0
(650.0)
(150.0)
0.0
0.0
0.0
(150.0)
(938.4)
5,205.7
91.1
(555.0)
3,803.4
(650.4)
(987.8)
1,000.0
0.0
(33.8)
(21.6)
1,977.2
(857.9)
0.0
0.0
(71.7)
(929.6)
705.3
(884.6)
(3,000.0)
0.0
(107.1)
(3,991.7)
511.5
Total revenue
Cost of goods sold
SG&A
R&D
Other operating profit/(expense)
EBITDA
Depreciation & amortization
EBIT
Interest income
Interest expense
Income/(loss) from uncons. subs.
Others
Pretax profits
Income tax
Minorities
Net income pre-preferred dividends
Preferred dividends
Net income (pre-exceptionals)
Post-tax exceptionals
Net income
Dividends paid (common & pref)
Inc/(dec) in debt
Common stock issuance (repurchase)
Other financing cash flows
Cash flow from financing
Total cash flow
Balance sheet (Rmb mn)
12/13
12/14E
12/15E
12/16E
Cash & equivalents
Accounts receivable
Inventory
Other current assets
Total current assets
Net PP&E
Net intangibles
Total investments
Other long-term assets
Total assets
1,436.2
6,879.3
1,463.1
18,310.1
28,088.7
5,793.0
0.1
604.7
8,724.6
43,211.2
3,413.5
9,182.6
1,683.5
16,110.1
30,389.7
6,120.9
0.1
668.7
8,724.6
45,904.0
4,118.8
10,089.0
2,017.8
16,110.1
32,335.7
6,432.3
0.1
739.1
8,724.6
48,231.9
4,630.3
10,157.2
1,805.7
16,110.1
32,703.4
6,253.2
0.1
816.5
8,724.6
48,497.9
Accounts payable
Short-term debt
Other current liabilities
Total current liabilities
Long-term debt
Other long-term liabilities
Total long-term liabilities
Total liabilities
5,633.0
12,240.6
4,568.4
22,442.0
1,132.8
1,363.5
2,496.3
24,938.3
5,375.1
13,240.6
4,568.4
23,184.1
1,132.8
1,363.5
2,496.3
25,680.4
5,444.8
13,240.6
4,568.4
23,253.8
1,132.8
1,363.5
2,496.3
25,750.1
6,132.0
10,240.6
4,568.4
20,941.0
1,132.8
1,363.5
2,496.3
23,437.3
Preferred shares
Total common equity
Minority interest
0.0
17,800.8
472.1
0.0
19,672.6
550.9
0.0
21,763.5
718.3
0.0
24,092.4
968.2
Total liabilities & equity
43,211.2
45,904.0
48,231.9
48,497.9
4.65
5.13
5.68
6.29
Ratios
CROCI (%)
ROE (%)
ROA (%)
ROACE (%)
Inventory days
Receivables days
Payable days
Net debt/equity (%)
Interest cover - EBIT (X)
12/13
14.4
18.6
8.1
11.0
46.7
161.6
168.7
19.3
61.1
12/14E
7.5
15.3
6.4
7.2
48.2
191.5
168.6
17.6
21.0
12/15E
10.9
14.2
6.3
9.7
43.9
174.3
128.3
12.7
29.4
12/16E
11.7
14.0
6.6
10.6
40.4
163.7
122.2
(2.6)
54.5
Valuation
12/13
12/14E
12/15E
12/16E
6.7
1.1
4.9
0.8
5.3
10.5
1.1
7.5
0.8
4.1
7.6
1.0
5.3
0.7
4.2
7.0
0.9
4.2
0.6
4.6
BVPS (Rmb)
P/E (analyst) (X)
P/B (X)
EV/EBITDA (X)
EV/GCI (X)
Dividend yield (%)
Note: Last actual year may include reported and estimated data.
Source: Company data, Goldman Sachs Research estimates.
Analyst Contributors
Miang Chuen Koh, CFA
[email protected]
Wieta Anton Honoris
w[email protected]
Ishan Sethi
[email protected]
Goldman Sachs Global Investment Research
2
February 27, 2014
Yangzijiang Shipbuilding (YAZG.SI)
Disclosure Appendix
Reg AC
I, Miang Chuen Koh, CFA, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company
or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific
recommendations or views expressed in this report.
Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and
market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites
of several methodologies to determine the stocks percentile ranking within the region's coverage universe.
The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate
of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend
yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.
Quantum
Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for
in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.
GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list
includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and
superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate
performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the
environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Miang Chuen Koh, CFA: ASEAN. Ishan Sethi: ASEAN.
ASEAN: Airports of Thailand PCL, Alliance Global Group Inc., Astra Agro Lestari, Astra International, Bumitama Agri, Cosco Singapore, First
Resources, Genting, Genting Malaysia Berhad, Genting Singapore Plc, Golden Agri-Resources Ltd., IHH Healthcare Bhd, IOI Corporation, Indofood
Agri Resources, Indomobil Sukses Internasional, Jardine Cycle & Carriage, Keppel Corp, Kuala Lumpur Kepong, Lafarge Malaysia Berhad, Malaysia
Airports Holdings Berhad, Noble Group Limited, Olam International, PT Holcim Indonesia Tbk, PT Indocement Tunggal Prakarsa Tbk, PT Jasa Marga
(Persero) Tbk, PT United Tractors, San Miguel, Sembcorp Industries, Sembcorp Marine, Semen Indonesia Persero Tbk, Siam Cement PCL, Siam City
Cement Public Co., Siam City Cement Public Co. (Foreign), Siloam International Hospitals, Sime Darby Bhd, UMW Oil & Gas Corporation Berhad,
Vard Holdings, Westports Holdings Berhad, Wilmar International, Yangzijiang Shipbuilding.
Company-specific regulatory disclosures
The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies
covered by the Global Investment Research Division of Goldman Sachs and referred to in this research.
Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: Yangzijiang
Shipbuilding (S$1.13)
Goldman Sachs had a non-securities services client relationship during the past 12 months with: Yangzijiang Shipbuilding (S$1.13)
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe
Rating Distribution
Buy
Hold
Investment Banking Relationships
Sell
Buy
Hold
Sell
Global
32%
54%
14%
53%
45%
36%
As of January 1, 2014, Goldman Sachs Global Investment Research had investment ratings on 3,637 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell
for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.
Goldman Sachs Global Investment Research
3
February 27, 2014
Yangzijiang Shipbuilding (YAZG.SI)
Price target and rating history chart(s)
Stock Price Currency : Singapore Dollar
Yangzijiang Shipbuilding (YAZG.SI)
Goldman Sachs rating and stock price target history
2.50
1.35
1.4
3,500
1.05
1.05
1
0.97
1.08
1.06
3,100
1.50
0.82
2,900
1.00
0.50
Stock Price
0.00
3,300
0.85
2.00
0.88
Jul 13
Aug 13
Jun 3
N
S
N
F MA M J J A S O N D J F MA MJ J A S O N D J F MA M J J A S O N D
2011
2012
2013
2,700
2,500
Index Price
3.00
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2013.
Rating
Covered by Miang Chuen Koh, CFA,
Price target
Price target at removal
as of Jul 13, 2011
Not covered by current analyst
FTSE Straits Times
Index
The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or
may not have included price targets, as w ell as developments relating to the company, its industry and f inancial markets.
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Goldman Sachs Global Investment Research
4
February 27, 2014
Yangzijiang Shipbuilding (YAZG.SI)
Ratings, coverage groups and views and related definitions
Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy
or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned as
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Yangzijiang Shipbuilding (YAZG.SI)
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