SINGAPORE Aug 7 Yangzijiang Shipbuilding
(Holdings) Ltd, China's second-largest listed
shipbuilder, is standing tall in an industry battered by a
supply glut and lack of new orders, thriving on high-margin
orders and a profitable side investment business.
The Singapore-listed company concedes, however, that stormy
seas could strike next year.
Yangzijiang, based in Jiangsu Province next to China's
financial centre Shanghai, could see its profit margins decline
as orders secured before the onset of the shipping market crisis
run out, leaving the company to compete for ship orders at
cheaper prices and lower margins.
"2014 will be difficult, but we will be able to get out of
the difficult situation in 2015, as many of our orders will be
delivered and our property development will bring profit that
year," Ren Yuanlin, Yangzijiang's chairman, told reporters at a
press briefing in Singapore.
China's most profitable shipyard reported its net profit in
the second quarter of the year fell 8 percent on the year to
881.7 million yuan ($144.03 million), and its gross profit
margin edged down to 27 percent from over 30 percent a year
The results, though weaker from a year earlier, outstripped
those of other shipbuilders in China, including the China
Rongsheng Heavy Industries Group Holdings Ltd which
has been suffering from a liquidity crunch.
Yangzijiang's investment segment saw a hefty 20 percent gain
in gross profit year on year, contributing nearly 30 percent of
the company's total gross profit, while the contribution from
its shipbuilding segment declined to 69 percent from 72 percent.
Banks are willing to lend money at cheap rates to
Yangzijiang, which loans out its own cash to other companies in
real estate, manufacturing, retail, trading and other sectors,
but shipbuiding will remain the core of the company, Ren said.
Yangzijiang is known for shunning businesses with low or no
margin that a number of its peers have eagerly pursued, such as
those involved in manufacturing equipment used in the offshore
Yet, the company still sees offshore as a driver of future
growth, along with ship demolition and steel fabrication.
Yangzijiang will start construction of its first jackup
drilling rig in late August, on a contract requiring the
customer to pay 10 percent of the $170 million up front.
In a bid to win contracts, some Chinese yards have agreed on
initial payment as low as 2 percent, a rate Ren considers
ludicrously low and risky.
Excluding the jackup order, Yangzijiang's order book stood
at $3.24 billion, down from $3.4 billion at the end of 2012, and
included 29 container ships and 42 bulk carriers, after winning
orders worth $1.01 billion in the first half of the year.
A number of yards, including China CSSC Holdings Ltd
, the biggest listed Chinese yard by market
capitalisation, and COSCO Corporation (Singapore) Ltd,
have been trying to break into the offshore equipment market,
which has been dominated by yards in Singapore and South Korea.
Chinese yards are poised to win more orders for jackup
drilling rigs than Singaporean yards, the traditional market
leader, for the second year straight, but most established
drilling companies are wary of ordering with them, worried about
cost overrun, execution risk and delayed delivery.
A recent Chinese government plan to restructure its massive
shipbuilding industry will help quality yards like Yangzijiang
to secure more orders and financial support, but 50 percent of
the existing yards, most of which are likely privately-owned,
will disappear, Ren said.
Yangzijiang's share price rose 1.6 percent on Wednesday to
S$0.94, down 2.1 percent so far this year.
($1 = 6.1217 Chinese yuan)
(Reporting by Rujun Shen; Editing by Jeremy Laurence)