Contents
Contents .......................................................................................................................................................................... 2
Investment Debates Summary....................................................................................................................................... 3
Debate #1: When Will the Shipbuilding Industry Recover?........................................................................................ 4
Global GDP Recovery to Boost Seaborne Trade …............................................................................................................................................... 4
Improved Sea Trade Outlook Will Only Speed Up Delivery of Existing Backlog, Not Introduce Strong New Demand ........................................... 4
New-building Price to Hit Bottom in Next 6-12 Months ........................................................................................................................................... 5
Shipping Lines to Be More Conservative ................................................................................................................................................................ 6
Shipbuilding Capacity Far Exceeds Demand.......................................................................................................................................................... 6
Anticipating U-shaped Recovery for Shipbuilding Industry ..................................................................................................................................... 8
What Could Change Our Industry View .................................................................................................................................................................. 8
Debate #2: What Drives Stock Prices? ....................................................................................................................... 11
Stock Driver Checks.............................................................................................................................................................................................. 11
Debate #3: How to Value the Stocks?........................................................................................................................ 14
P/B Moving above Historical Median Level ........................................................................................................................................................... 14
Residual Income – Intrinsic Value throughout the Cycle....................................................................................................................................... 14
De-rating catalyst: Continuous Decline of Backlog Value ..................................................................................................................................... 15
Forward P/E Exceeds 10x, Not Cheap for Cyclical Names................................................................................................................................... 15
Summary of Rating, Price Target and Earnings Revisions ...................................................................................... 17
Retain Underweight on offshore listed shipyards .................................................................................................................................................. 17
Upgrade A-share to Equal-weight ......................................................................................................................................................................... 17
Summary of Price target & RI Value Changes ...................................................................................................................................................... 17
Earnings Revisions: Cutting Forecasts on Lower Margin Assumption.................................................................................................................. 19
Company Analysis ....................................................................................................................................................... 21
Guangzhou Shipyard Intl............................................................................................................................................. 22
Underweight, Price Target HK$12.9..................................................................................................................................................22
SOE profile enhances prospects and government support................................................................................................................................... 22
Small capacity an advantage during downturn...................................................................................................................................................... 23
Why Not Overweight ............................................................................................................................................................................................. 23
Cut 2009/2010E Earnings but Raise 2011 Estimate............................................................................................................................................. 29
Yangzijiang Shipbuilding (Holdings) Ltd. ................................................................................................................... 32
Underweight, Price Target S$0.81 ....................................................................................................................................................32
China State Shipbuilding............................................................................................................................................. 39
Equal-weight, Price Target Rmb81.4.................................................................................................................................................39
Reducing Earnings Forecast on Lower Margin Outlook........................................................................................................................................ 43
1H09 Earnings Recap – Negative Margin Surprise............................................................................................................................................... 43