Yangzijiang navigates rough seas, but raises warning signal

Published: 11:22 PM, August 7, 2013
Updated: 8:40 PM, August 8, 2013
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SINGAPORE – Yangzijiang Shipbuilding (Holdings), 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,” said Yangzijiang chairman Ren Yuanlin at a press briefing in Singapore.

China’s most profitable shipyard reported its net profit in the second quarter of the year fell 8 per cent on the year to 881.7 million yuan (S$182.7 million), and its gross profit margin edged down to 27 per cent from more than 30 per cent a year earlier.

The results, though weaker from a year earlier, outstripped those of other shipbuilders in China, including the China Rongsheng Heavy Industries Group Holdings which has been suffering from a liquidity crunch.

Yangzijiang’s investment segment saw a hefty 20 per cent gain in gross profit year on year, contributing nearly 30 pe rcent of the company’s total gross profit, while the contribution from its shipbuilding segment declined to 69 per cent from 72 per cent.

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, Mr 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 energy industry.

Yet, the company still sees offshore as a driver of future growth, along with ship demolition and steel fabrication.

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