For Yangzijiang Shipbuilding, Mega Container Ships are Their “Signature Product”

Image: Yangzijiang Shipbuilding

SINGAPORE, Feb 27 (Reuters) – Yangzijiang Shipbuilding Holdings Ltd, a top Chinese shipbuilder, plans to build more mega container ships for shipowners eager to cut operating costs.

Yangzijiang is China’s third-largest listed shipbuilder by market capitalisation and has boasted profit margins that dwarf those of domestic and overseas peers.

Yangzijiang is ready to hand over its first mega container ship in March, which can move around 10,000 standard twenty-foot (TEU) containers, and is planning to build vessels that can handle up to 18,000 boxes.

“We want to make container ships our signature product,” said Ren Yuanlin, Yangzijiang’s chairman.

On the company’s outstanding order book of $4.6 billion, which rose from $3.9 billion at the end of September last year, 81 bulk carriers take up 55 percent of the total value while the rest are container ships, company data showed.

The company said to gain access to the megaship market it will likely offer lower prices than those offered by the Korean yards like Hyundai Heavy Industries Co Ltd, Samsung Heavy Industries Co Ltd and Daewoo Shipbuilding and Marine Engineering Co Ltd.

“It is absolutely the path for Yangzijiang,” said Jon Windham, an analyst at Barclays in Hong Kong, referring to the company’s ambition in building larger ships.

Shipping companies have been under pressure to upsize their vessels in order to cut down fuel costs, despite the fact that capacity growth has outpaced demand increase and freight rates remained under pressure.

“There are two choices if you are a container shipping company; you either exit the business or you order bigger ships,” said Windham of Barclays.

In 2013, containers ships with capacities larger than 8,000 TEU dominated new orders globally. Vessels with a combined capacity of 19.2 million deadweight tonnes (DWT) were ordered, up from 2.7 DWT in 2012, according to the World Shipyard Monitor published by Clarkson Research Services.

Yangzijiang said it plans to deliver another eight 10,000 TEU ships, after handing over the first one to shipowner Seaspan Corp next month.

Q4 NET PROFIT FALLS

Yangzijiang’s fourth-quarter net profit dropped 8 percent as income from shipbuilding decreased.

It reported a fourth-quarter net profit of 746.3 million yuan ($121.85 million) and a full-year net profit of 3.1 billion yuan, slightly higher than Thomson Reuters SmartEstimate of 3.0 billion yuan.

The pre-tax margin for the year stood at 34.5 percent, up from 32.9 percent a year earlier, compared with an industry median of 10 percent, according to Thomson Reuters data.

The company’s shipbuilding business posted a 43 percent gross margin due to high-margin contracts secured before the global financial crisis. Shipbuilding prices have since slid, and the company had warned investors that profit margins could be squeezed as construction of ships on lower-margin orders took over the yard’s docks.

The company has recently signed a contract to build two semi-submersible drilling rigs for $825 million with an option for two similar rigs, the second offshore engineering equipment order it has won since the jackup rig order in 2012.

(c) 2014 Thomson Reuters, All Rights Reserved

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