振华重工(600320.CN)

Shanghai Zhenhua Heavy Industry:Poor Results Offset New Order Recovery; Retain EW

时间:10-09-08 00:00    来源:摩根士丹利亚洲

Quick comment: With net loss of Rmb187mn, ZPMCrecorded poor results in 1H10, which offset the positivedevelopments – new orders recovered by 170% YoY toUS$1.5bn, surpassing deliveries and raising the backlogvalue by approximately US$0.2bn. While both containercrane and dry bulk machinery business experienced asharp revenue decline, the offshore business posted20% top-line growth, lifting its revenue share to 25% in1H10 vs. 12% in 1H09. This mixed performance was inline with our expectation that the traditional business isstill passing through its fundamental trough while newbusinesses (such as offshore) will introduce positivegrowth momentum. We maintain our EW rating on boththe A and B shares as the earnings pressure will likelycap upside potential while the current historically lowvaluation (2010e P/B of 1.9x for A shares and 1.1x for Bshares) should have reflect the negatives.

What’s new: Due to the weak demand for portmachinery, ZPMC’s revenue declined 41% YoY toRmb9bn in 1H10. What’s worse, the ASP decline,weaker euro, rising fixed assets depreciation, and highertransportation cost significantly deteriorated the margin,leading to a net loss of Rmb187mn, which was belowour expectation. Despite sluggish earnings, new ordersrecovered 170% in 1H10 with backlog value atapproximately US$4.6bn, up 4% HoH and 54% YoY.

Business diversification favors mix improvement:Thanks to the proactive new business diversificationstrategy, the company’s offshore business posted 20%revenue growth in 1H10, which offset the slump intraditional businesses and diversified the revenue mix.

With a new order of a 3,800T pipe-laying vessel fromNational Petroleum Construction Company (Abu Dhabi)and the new wind power equipment JV with ChinaLongyuan Power, we believe the company’s revenuemix will improve further, with more high value-addedbusinesses contributing to earnings in the future.