Yangzijiang-UBS

Good 08 results on solid exectution
􀂄 2008 profit in line with UBSe and consensus
YZJ reported NPAT of Rmb1,580m (+82%YoY) and revenue of Rmb7,359m
(+91%YoY) for 2008. Both are largely in line with UBS estimates (-5% and 3%
above consensus, respectively). Note YZJ’s GM fell to 18.5% in 08 from 23.0% in
07, mainly due to the margin contraction to 12.7% in Q408 (19.9% in Q407), as it
raised provision for potential cost variation to 8% of contract price from 0.5%.

􀂄 A certain guidance during the uncertain time YZJ’s mgmt guided the company would stick to its original delivery schedule of 40 vessel in 2009, though it could provide 3-6mo berthing time upon receiving the full payment and if required by ship owners. YZJ has not yet encountered order cancellation, and will proactively co-work with its customers to avoid or reduce such risk down the road.

􀂄 Benefits from govt support still difficult to quantify. The recently announced industry revitalization plan by China govt would benefit two large state-owned shipbuilding giant, CSSC and CISC, as well as some selected names such as YZJ, one of three private yards in Jiangsu named. With 27 vessels of 850k DWT delivered in 08, YZJ was ranked 6th in China with an orderbook of 155 vessels of US$6.9bn. However, it is difficult to quantify the policy benefits, as most are guideline only as of now.

􀂄 Valuation: maintain Buy, PTS$1.30
We will review our forecast following the results. We maintain our Buy rating and
12-month price target of S$1.30, based on 2.5x 2009E book value.
Highlights