Published November 4, 2009

SHIPBUILDING: MIXED FORTUNES
Yangzijiang Q3 profit up 17%

It ramped up production with the increase in new yard's productivity

By VINCENT WEE
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YANGZIJIANG Shipbuilding posted a 17 per cent rise in third-quarter net profit to 554.2 million yuan (S$113.8 million) from 475.3 million yuan in the third quarter of last year as revenue rose by 28 per cent to 2.59 billion yuan from 2.02 billion yuan.

The group's turnover for the first nine months increased 31 per cent year-on-year to 7.2 billion yuan as Yangzijiang was able to ramp up production due to the increase in the new yard's productivity.

Nine-month net profit was up 39 per cent at 1.64 billion yuan, higher than the 1.58 billion yuan Yangzijiang made for the whole of last year. Gross profit increased by 38 per cent to 1.56 billion yuan due to increased construction activities in the group's yards.

However, for Q3 2009, higher steel costs and increased costs associated with providing docking facilities as part of the group's strategy to help long-term customers resulted in gross profit margin declining from 23 per cent to 20.2 per cent. Gross profit rose 12 per cent to 523.3 million yuan.

Yangzijiang delivered seven vessels in Q3 2009, the same as the previous corresponding quarter, bringing the total number of vessels delivered in the first nine months to 24, and the China-based shipbuilder is on track to deliver 40 vessels for the year as per schedule. The group also started to recognise revenue from the building of 13 new vessels in the third quarter as compared with eight new vessels in Q3 2008.

'Other gains' went up 19 per cent in 9M 2009 to 240 million yuan as a result of higher gains on disposal of scrap raw materials (due mainly to more scrap raw materials from increased production activities) and foreign exchange related gains. The board has recommended a 30 per cent dividend payout ratio for FY2009 attributable net profits.

Yangzijiang also recently secured contracts to build six 92,500 dwt multi-purpose bulkers (including two on-spec builds it started work on in Q2 2009) and another two 19,000 dwt bulkers with a total value of US$300 million with deliveries going up to 2012. This brings its order book to US$5.8 billion comprising 134 vessels as of yesterday and Yangzijiang has not had any order cancellations to-date.

The group aims to diversify revenue sources by entering into an agreement with several strategic partners to set up a scrap steel processing business, which will be used as a platform to enter into an environment-friendly ship breaking business.

The management hopes that its unit Jiangsu New Yangzi Shipbuilding's 20 per cent stake in Jiangsu Huayuan Metal Processing Co will develop into an important business segment to complement its shipbuilding business when it gets off the ground in the first half of next year.

'We are progressing towards setting up a scrap steel processing business that will eventually help us to enter the ship breaking business. We are optimistic that this business will open up another stream of revenue complementing the group's existing shipbuilding operations,' said executive chairman Ren Yuanlin.