Switch from COSCO to Yangzijiang

COSCO just announced another bad set of results. This is in contrary to the results posted by Yangzijiang. SINGAPORE (Dow Jones)--Chinese oil-rig and ship builder Cosco Corp. (F83.SG) Thursday said first quarter net profit fell 60% on lower dry-bulk charter rates and lower profit contributions from its ship repair and ship building business. Cosco said in a statement that net profit for the three months ended March 31 dropped to S$33.2 million from S$84 million a year earlier, and warned that operating conditions in the current year will remain weak due to the global economic slowdown. \"Due to the uncertain global economic environment, the group expects earnings for financial year 2009 to be substantially lower as compared to financial year 2008,\" Cosco said in a statement. Cosco\'s earnings fell short of the S$51 million forecast by a Dow Jones Newswires poll of analysts. Revenue fell 0.4% to S$714.4 million in the first quarter from S$718 million a year earlier. Profit contribution from the company\'s ship repair, ship building and marine engineering operations fell, causing the group\'s net profit to decline. The slowing global economy, falling crude oil prices and the credit crunch have hurt some of Cosco\'s customers, forcing them to either seek termination of contracts or delay the delivery of oil rigs and ships. In a separate statement, Cosco also said a European customer has sought to cancel one of four vessel contracts placed with the ship builder in 2007. The same customer has also asked to delay the delivery of two bulk carrier vessels, but kept its order for the remaining vessel intact, Cosco said. \"Pursuant to the rescheduling, the delivery dates for the two vessels will now take place by June 2010 and September 2010 instead of March 2010 and May 2010, respectively,\" Cosco said. Cosco, which had an order book of US$7 billion as of March 31, said its order book is subject to revision from any cancelation of orders or new orders that may arise. \"Our group remains cautious of the market conditions in 2009 amidst the uncertain global economic outlook,\" Cosco Vice-Chairman and President Jiang Li Jun said in the company\'s earnings statement. The company said turnover from its dry bulk shipping business in the first quarter fell 22% from a year earlier to S$46.2 million. \"Even though the array of economic stimulus packages recently implemented by various countries seem to start showing some positive results, our group believes it is too premature to conclude that the economy and our industry will turn the corner anytime soon,\" Jiang said. -By P.R. Venkat, Dow Jones Newswires; +65 64154 152; venkat.pr@-dowjones.com

DJ MARKET TALK: Yangzijiang May Rise; 1Q09 Earnings +30% 2355 GMT [Dow Jones] Yangzijiang (BS6.SG) may rise on improvement in 1Q09 bottomline, prospect of added income stream as company explores venturing into ship repair business. China-based shipbuilder\'s 1Q09 net profit +30% on-year at CNY483.3 million on increased revenue, lower taxes; revenue +23% due to increased contributions from new yard for construction of large vessels (6 ships delivered vs 5 in 1Q08). Current orderbook stands at US$6.7 billion for 149 vessels, with no cancellations so far. In bid to expand business, company mulling venture into ship repair, ship dismantling but no decision made yet. Still, persistent weakness in shipping sector may cap share price gains, with industry facing oversupply of vessels amid falling freight rates. Yangzijiang also faces risk of clients canceling orders due to financing problems as most of projects secured near peak of shipbuilding sector, when vessel prices were at their highest. Stock closed +4.7% at S$0.45 yesterday; not expected to clear S$0.50 (last breached April 17). (FKH)

Gross profit for the Group increased by 20% to RMB424.5 million for 1Q2009 with the gross profit margin staying over the 20% level despite the 8% provision taken in 1Q2009 compared with only a 0.5% provision in 1Q2008. This is a prudent provision taken since last quarter of 2008 for potential cost variation to 8% of shipbuilding contract price on vessels that were under construction and partly due to increased material cost and weakening of USD/RMB over the period. Moreover, the increased provision in 1Q2009 was offset by the higher profit margins from construction of larger vessels in the new yard. Other income that comprises mainly of interest income was marginally lower at RMB39.7 million in 1Q2009 as compared with that of last year as the interest rates decreased over the period. The other gains recorded an increase of 10% in 1Q2009 to RMB97.3 million mainly due to foreign exchange related gains from realized forward contracts in the quarter. The costs were kept well under control with the operating expenses remaining stable at 2% of the revenue. The effective tax rate for the Group decreased from 7.2% in 1Q2008 to 5.7% in 1Q2009 as the tax-exempted new yard provided greater profit contributions. Consequently, the net profit attributable to shareholders registered an increase of 30% in 1Q2009 to RMB483.3 million. “The progress from our new yard is very encouraging to the Group. We delivered our first two 92,500 DWT vessels and the first 4,250 TEU vessel in this quarter. This is not only a key operational milestone, but also a proud achievement for us and I would like to acknowledge the tireless efforts put in by the team and the unceasing support from our customers.” Mr Ren Yuanlin, Executive Chairman, Yangzijiang The cash flow from operating activities remained robust at RMB530.6 million for 1Q2009 mainly due to the profit generated and the Group’s destocking policy (in view of the softening of commodity prices). The balance sheet remained healthy for the Group with minimum debt and a net cash position in terms of gearing. Outlook / Future Plans The order stood at USD6.7 billion as at 31 March 2009 comprising of 149 vessels and till date the Group has not witnessed any cancellation of orders. A total of 6 vessels were delivered in 1Q2009 and another 2 in April of 2009, and going forward the Group expects to deliver a total of 40 vessels in 2009 as per its schedule. During this prolonged global economic downturn, the Group is maintaining constant dialogue with the ship owners and is trying its best to help one another in going through this crisis. To weather through this downturn, the Group has decided to provide the following on a case-by-case basis: 1. With Yangzijiang being one of the few shipbuilders eligible to benefit from shipbuilding stimulus package in China, the Group will be actively involved in liaising with banks to help some ship owners in applying for financing. 2. For those orders where the Group has received the 40% prepayment in cash, any request to delay the start of the construction of the vessel will be considered and accordingly evaluated. 3. The Group will also consider and evaluate any request by ship owners to change the vessel type, provided the requested vessel type is one of the vessel models produced in Yangzijiang’s yards. 4. The Group will consider providing docking facilities for completed vessels for up to 6 months for particular vessels where the ship owners have signed the protocol of acceptance. 5. With the softening of commodity prices, the Group will consider and evaluate the possibility of a raw materials rebate for only the higher margin vessels. In addition, the Group will continue to closely monitor the financial status of its customers and their financing resources. With significant level of cash on the balance sheet, the Group will look into:  exploring feasible opportunities to venture into ship repair and/or ship dismantling businesses; and  working with banks and shipping lines to look for feasible opportunities to acquire and co-own certain vessels at distressed price levels. Moving forward, with robust cash on the balance sheet and a sizeable order book, the Board remains confident of continued growth in production and profitability for the FY2009.

Up for the 4th consecutive days with high volume.. Heard Yangzijiang is doing roadshows with ang mo houses next week. More buying interests ahead ????