Yangzijiang Shipbuilding---------------------------------------------------Maintain OUTPERFORM

Strong 1Q11 results driven by high gross margin EPS: ◄ ► TP: ◄ ►

Gerald Wong / Research Analyst / 65 6212 3037 / gerald.wong@credit-suisse.com

Bhuvnesh Singh / Research Analyst / 65 6212 3006 / bhuvnesh.singh@credit-suisse.com

Christopher Chang / Research Analyst / 65 6212 3024 / christopher.chang@credit-suisse.com

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revenue increase to RMB3.1 bn. Despite being a seasonally

weaker quarter, 1Q11 gross profit of RMB827 mn was 26% of our

FY11 forecast of Rmb3.2 bn, as gross margins surged to 27.1% in

1Q11 from 23.3% in 1Q10.Yangzijiang reported strong 1Q11 results, with a 14% YoY

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Rmb3.4 bn, driven by an increase in interest income to Rmb281

mn. The company also registered a Rmb112.8 mn gain due to

positive mark to market variation for outstanding contracts

denominated in euro.1Q11 net profit of Rmb955 mn was 28% of our forecasts of

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orders worth US$512 mn in 1Q11. According to

has also signed a letter of intent (LOI) with Seaspan to construct

up to 22 10,000 TEU containerships worth US$2.2 bn.Yangzijiang announced on 11 April it had secured 14 newbuildTradewinds, it

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May. On 2011E P/E of 11x, we believe Yangzijiang offers good

value relative to its global shipbuilding peers. We maintain our

OUTPERFORM rating and target price of S$2.40.We maintain our forecasts pending the NDR we are hosting on 4

Strong results driven by high gross margins

Yangzijiang reported strong 1Q11 results, with a 14% YoY increase in

revenue to Rmb3.1 bn. 1Q11 gross profit of Rmb827 mn was 26% of

our FY11 forecast of Rmb3.2 bn, as gross margins surged to 27.1% in

1Q11 from 23.3% in 1Q10. Management attributed the strong margins

to the construction and delivery of contracts secured prior to the

financial crisis. 1Q11 net profit of Rmb955 mn was 28% of our

forecasts of Rmb3.4 bn, driven by an increase in interest income to

Rmb281 mn. The company also registered a Rmb112.8 mn gain due

to positive mark to market variation for outstanding contracts

denominated in euro.

Figure 1: Yangzijiang – 1Q11 results

Reported results Change (%) Against FY est

(RMB mn) 1Q10 4Q10 1Q11 QoQ YoY FY11E YTD (%)

Revenue 2,676 4,090 3,050 (25.4) 14.0 14,280 21.4

Gross profit 623 857 827 (3.5) 32.7 3,234 25.6

PBT 741 1,081 1,151 6.5 55.3 3,892 29.6

PATMI excl EI 586 838 955 13.9 62.8 3,382 28.2

Gross margin (%) 23.3 20.9 27.1 22.6

Op. margin (%) 27.8 26.8 38.1 19.7

Source: Company data, Credit Suisse estimates.

US$512 mn of contracts secured in 1Q11

Yangzijiang announced on 14 April 2011 that it has secured six

newbuild orders worth US$214 mn in March 2011. These contracts

would bring total order intake in 1Q11 to US$512 mn, representing

26% of our 2011 order forecast of US$2 bn. The six vessels are

expected to be delivered between 2012 and 2013.

Figure 2: Contracts for 6 vessels secured in March 2011

Units Vessel Size Estimated value (US$ mn)

2 82,000 DWT bulk carrier 70

2 4,800 TEU containerships 100

2 10,000 DWT bulk carrier 40

Source: Company data, Credit Suisse estimates.

Order momentum improving Seaspan contract could

provide further upside

The US$512 mn of contracts secured in 1Q11 represent the highest

level of contracts secured in a quarter since 3Q08, reflecting

improving order momentum for the company. Press reports have

suggested that Yangzijiang has signed a letter of intent with Seaspan

for 22 containerships worth up to US$2.2 bn. If contracts for 15 10,000

TEU containerships are secured this year, Yangzijiang would achieve

our FY11 forecasts without further contract wins.

Figure 3: Order momentum improving

0

100

200

300

400

500

600

3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11

Quarterly Contract Wins (US$mn)

Source: Company data. NB: 3Q10 refers to Jul-Aug 2010. 4Q10 refers to Sep-Dec

2010.

Maintain OUTPERFORM

We maintain our forecasts pending the NDR we are hosting on 4 May.

On 2011E P/E of 11x, we believe Yangzijiang offers good value

relative to its global shipbuilding peers. We maintain our

OUTPERFORM rating and target price of S$2.40.

Yangzijiang (YAZG.SI)

Margin Surprise Drives Stronger than Expected Quarter

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valuations (~11x FY11/12E P/E). While concerns remain over the rate of margin

contraction beyond 2012, the group continues to make significant headway in its plans

to broaden its product offerings (10-300k dwt vessels) and double shipbuilding capacity

by 2013. Following the strong start, we think there might be potential room for upside

risks to our FY11/12E earnings/order wins assumptions.Maintain Buy — We continue to like YZJ for its strong execution and undemanding

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than our above-consensus projections (29% of full-year est). The positive surprise

came on the back of i) higher-than-expected gross margins (27% +615bps QoQ +382

bps YoY) ii) stronger interest income (RMB281mn +124% YoY) and iii) Forex gains

(RMB113mn +187% YoY) relating to mark-to-market variations on outstanding EURdenominated

orders. Net Cash remains healthy at RMB1.5bn.1Q11 Results — 1Q11 PATMI of RMB955mn (+14% QoQ +63% YoY) was stronger

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‘high-margin’ vessels and the corresponding write-back of provisions made in earlier

periods. High-margin orders constitute c.55% of order backlog as at end 1Q11 and

mgmt remains confident of delivering margins in the 20% region in FY11-12. From

2013, however, margins are generally expected to trend downwards to 10-15%.Margin Outlook — Gross margin surprise was underpinned by the completion of four

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our US$1.4bn full-year est), taking net orderbook to US$5.4bn (~ 50-50% split between

containerships and bulk carriers in terms of order value). Details are still being finetuned

with respect to the group’s potential contract with Seaspan (LOI to build 22 10k

teu containerships worth US$2bn). Should the order materialize, we note that YZJ will

be the first Chinese yard to be awarded

Chinese customer. We think this would eventually improve YZJ’s competitive

positioning vis-ŕ-vis the Korean yards.Orderbook Prospects — YZJ secured US$512mn worth of new orders in 1Q11 (vs.≥ 10k teu containership contract from a non-

Equities

Statistical Abstract

Year to Net Profit Diluted EPS EPS growth P/E P/B ROE Yield

31 Dec (RmbM) (Rmb) (%) (x) (x) (%) (%)

2009A 2,290 0.627 38.9 15.3 5.5 43.1 1.7

2010A 2,955 0.799 27.4 12.0 3.7 36.4 2.3

2011E 3,329 0.862 7.9 11.1 3.0 29.8 2.3

2012E 3,429 0.887 3.0 10.8 2.5 25.1 2.3

2013E 3,007 0.778 -12.3 12.3 2.2 18.8 2.3

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