Yangzijiang Shipbuilding (YZJ) recently announced that its subsidiary has entered into an agreement with four other companies to establish a JV that will provide marine electrical systems for shipbuilding of commercial vessels and marine engineering projects. Though we are not expecting a significant impact on earnings in FY11, we think this development should not be viewed in isolation but together with recent initiatives. YZJ has undertaken a series of acquisitions and collaborations since early 2010, and like recent initiatives, huge emphasis will be placed on R& D as the group seeks to broaden its product offering and scale up the value chain. The group looks on track in its strategic initiatives. Meanwhile, we do not think that YZJ is done with its acquisition spree, especially with it still sitting on RMB4.7b cash and cash equivalents (excl. restricted cash) as at 30 Sep 2010. Maintain BUY with S$2.36 fair value estimate.

Establishes JV to provide marine electrical systems. Yangzijiang Shipbuilding (YZJ) recently announced that its subsidiary has entered into an agreement with four other companies to establish a joint venture company that will provide marine electrical systems for shipbuilding of commercial vessels and marine engineering projects. The JV will develop, produce and sell marine electronic products, besides providing technical consultation and services to the marine industry. We are positive on this latest development as YZJ is likely to have an edge over competitors should this JV be successful in providing high quality marine electrical systems to customers. The JV may also enable YZJ to tap on Highlander’s clientele. Finally, this may also provide an alternative source of income from marine electrical systems.

Developing capabilities for the future. Though we are not expecting a significant impact on earnings in FY11, we think this development should not be viewed in isolation but together with recent initiatives. YZJ has undertaken a series of acquisitions and collaborations since early 2010 (Exhibit 1), and like recent initiatives, huge emphasis will be placed on R& D as the group seeks to broaden its product offering and scale up the value chain. YZJ also established a JV with two other companies in Aug 2010 to provide design vessel design services, and we believe this will be helpful as it seeks to develop newer vessel types, especially larger high-end vessels.

Expanding yard area. We understand that the old yard in Jiangyin city may eventually move after negotiations with the Chinese government as it is currently situated on prime land. It will then be replaced by Changbo Shipyard (production area 287,000 sqm), which is slightly bigger than the old yard. Even then, we estimate that YZJ has added a total of 1,100,000 sqm of land since Jun 2010 to its previous production area of about 1,700,000 sqm (old and new yard), signaling the group’s huge ambitions to expand capacity.

Maintain BUY. As mentioned in an earlier report (20 Sep 2010), we think that 1) intensifying its R& D efforts to expedite the development of new and innovative vessel types and 2) developing an offshore business will propel YZJ to the next level. The group looks on track in its strategic initiatives. Meanwhile, we do not think that YZJ is done with its acquisition spree, especially with it still sitting on RMB4.7b cash and cash equivalents (excl. restricted cash) as at 30 Sep 2010. Maintain BUY with S$2.36 fair value estimate.