Guangzhou shipyard shares soar 7.8pc on sixfold profit forecast
Shares of Guangzhou Shipyard (0317) soared to a record high after the company said it expects third-quarter net profit to increase sixfold year on year, thanks to higher gross margin and sales volume.The largest shipbuilder in South China recorded net profit of 15.6 million yuan (HK$15.35 million) in the third quarter of 2005. In an announcement Tuesday to the Hong Kong and Shanghai stock exchanges, the company said it may post a 500 percent increase in the same period this year to 121.7 million yuan, under China accounting standards.
Guangzhou Shipyard shares closed Tuesday at HK$9.70, up 70 HK cents, or nearly 7.8 percent.
For the six months ended June 30, the firm had reported net profit of 65.2 million yuan, up 139 percent from 27.24 million yuan the previous year.
In its statement, Guangzhou Shipyard company secretary Li Zhidong said the firm based its projection of a sixfold increase in net profit on the firm's "higher shipbuilding efficiency and shorter shipbuilding cycle, through continually improving shipbuilding management and technology."
By the end of the first half, the company secured new shipbuilding orders with contract value of 3.6 billion yuan, raising total outstanding orders to 11 billion yuan. Shipbuilding capacity is fully booked until mid-2009.
"The [anticipated] third quarter result is further confirmation of the upturn in the shipbuilding cycle," said Macquarie Research analyst, Michael Chan.
He expects the company's earning growth will remain positive, given higher ship prices amid lower steel prices.
Guangzhou Shipyard achieved a second-quarter gross profit margin of 11.9 percent in its shipbuilding business, up 1.88 percent from a year ago. Macquarie Research expects margins to expand beyond the 12 percent level in the fourth quarter.
An earlier Macquarie report said Guangzhou Shipyard may also benefit from Beijing's focus on the shipbuilding sector in the central government's 11th Five Year Plan, as well as potential merger and acquisition opportunities, and injection of assets from its parent, China State Shipbuilding Corp.
Guangzhou Shipyard has three shipbuilding docks, boosting annual capacity to 14 tankers in 2007 and 16 in 2008. However, some industry analysts are concerned the facilities are inadequate to sustain the company's long- term growth.
