In a recent client briefing Maybank Kim Eng pulled its “buy” recommendation and stamped the Chinese shipbuilder’s Singapore-listed stock with a “hold” rating.
While the firm believes Yangzijiang will outperform peers in the months ahead it argued that the rebound will be slower than previously anticipated.
“2015 order expectations need to be toned down as we foresee another sluggish year for China’s shipbuilding [industry],” it told investors.
“Supply and demand forces in the dry-bulk and container-shipping markets do not favour capacity growth.
“Newbuild prices have responded by trending down again. This signals that the recovery for Chinese shipbuilders has been postponed yet again. Competition for a shrinking order pie could compress margins.”
Prior to the downgrade Maybank was optimistic about Yangzijiang’s prospects on the heels of a government-backed restructuring.
“We believed it would benefit from a funneling of orders to yards on the government’s white list, on top of a shipbuilding recovery in 2015,” it said.
“While restructuring still holds, we now expect 2015 to be another muted year for Chinese shipbuilders.”
Maybank believes that Yangzijiang’s newbuilding backlog for this year and next will be worth between $1.6bn and $2.1bn, which is well below its previous estimate.
“While white-listed yards have been securing more orders, we now expect Chinese commercial shipbuilding to recover only in 2016,” it continued.
“This is because the current bulk and container shipping supply-demand forces do not favour further capacity growth.
“Shipbuilding prices, which started to recover in March 2013, have reversed course. The biggest problem is still oversupply in the face of soft demand growth.”
Going forward, Maybank does believe Yangzijiang will continue to gain more market share from what it described as “weaker” Chinese shipyards.
It pointed out that the company’s market share topped 6% in the summer of last year, which was the higher than the percentage held by all of its competitors.
