This Target Price make me scare and throw, now regret !!! Dont trust all this TP, always terbalik !!!

Singapore Company Focus

Yangzijiang

FULLY VALUED S$0.41 STI : 1,614.44

Price Target : 12-Month S$ 0.32 (Prev S$ 0.34)

Reason for Report : FY08 Results

Potential Catalyst: Industry turnaround

Analyst

Pei Hwa Ho +65 6398 7968

PeiHwa@dbsvickers.com

Janice Chua +65 6398 7954

janicechua@dbsvickers.com

Hardships building up

Yangzijiang’s FY08 earnings grew 82% yoy to RMB1.6bn on topline growth of 91% yoy. The bottomline fell short of our estimate by 5% due to provision of RMB200m.  Although the Chinese government’s stimulus policy to support the shipbuilding sector should bring some light to the industry, the risks of order cancellation/delays and default risk amidst depressed freight rates and credit crunch remain high. We trim our estimates by 5% and 10% for FY09 and FY10 respectively, on account of higher order cancellation / delay and potential provisions.

4Q08 gross margin shrunk by 10ppt qoq to 13% due to provisions of Rmb200m.

In view of the deteriorating conditions for shipping industry, Yangzijiang increased its provision for potential cost variation to 8% of contract prices, from 0.5% previously. The cost variation is to account for unexpected additional cost such as doubtful debt, price discount to shipowners and cost over-run for projects under construction. The provision may be reverted upon completion of the projects if the actual total cost incurred is less than budgeted cost.

Cancellations/delays underway.

Despite the Chinese government’s efforts to stimulate the shiipbuilding sector, the challenges of cancellation / delay and default risk amidst depressed freight rates and credit crunch will cap share price performance. Yangzijiang now expects to stretch its orderbook delivery over a longer period of 4.0 years, vs 3.5 years previously, as requests for order rescheduling are flowing in.

Maintain Fully Valued; TP reduced to S$0.32.

We trim our estimates by 5% and 10% for FY09 and FY10 respectively, as we now expect order cancellation / delay of 25% vs 15% previously, as well as raise the provision levels in FY09-FY10. Our TP is reduced to S$0.32 based on 3x revised FY09 earnings. Although we like YZJ’s proven execution track record, we see downside risk to current share price in anticipation of negative newsflow hitting the industry. Maintain fully valued.

Maintain Fully Valued. TP reduced to S$0.32.