Event: The company declared on October 20 that its orders at hand had already somewhat fulfilled its production demand until 2012, and it is concentrating on fulfilling these tasks within the following 5 years. Despite operational difficulties in some of its peers, the company is still in good shape, and had received most of the payable accounts.
Our Analysis and Estimation:
1) Growth of the sector has declined by a large margin since beginning of 2008; as a result, order quantity of shipbuilding industry intends to drop in both China and around the world. As far as we are concerned, global economy and shipment will continue to fall back under financial crisis, accordingly, order quantity of the shipbuilding sector will keep descending for a certain period of time in 2H2008.
2) The company owns full quantity of orders, and its customers are world-famous large ship owners; moreover, orders of high-added-value products takes up big proportion. Given factors above, we think its anti-risk capacity is highly above the sector average.
3) According to our calculation, the company has received orders for 25mn tons, given capacity expansion, production demand can still be satisfied for the next four years or above.
4) Potential risks for the company mainly include: 1) quantity of order will periodically drop due to downward global economic growth; 2) orders at hand might be probably cancelled in the future, which will cause periodical fluctuation to the company’s performance.
Investment Suggestion: Under assumption that no orders were canceled, we project the company’s EPS during 2008 and 2010 be Rmb6.35, Rmb7.23 and Rmb8.30 respectively; fair estimation will be Rmb43.38, supposing the company’s P/E ratio in 2009 at 6x. We hereby maintain our “Cautious” rating for the counter.