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YZJ had secured US$1.3bn worth of orders in 3Q10 with pockets of orders in 4Q10. We

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The container sector’s order book to fleet ratio of 13% is much lower than its 4-year average of 20%.

There are only 277 containerships scheduled for delivery in 2011, adding 6% to the global fleet.

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Excluding state-owned yards, YZJ ranks first in terms of contract wins with about US$150m worth of

containership orders YTD. Given this leading position, we believe YZJ should benefit

from any further uptick in the containership sector.

Revival of containerships

Can orders return to 2007 peak?

Low 4Q10 orders (35 units) may be caused by seasonality and we believe in an order

resurgence from the containership sector in 2011, potentially back to 2007 levels on the back of:

1) strong utilisation rates;

2) disciplined addition of new capacity in recent years; and 3) ship owners’ cash-rich positions.

Ranks first among privately-held Chinese yards.

quality private yards behind. YZJ ranks first among Chinese private yards in terms of contract wins,

securing 10,184 TEU of new containership orders or about US$150m YTD. Given this leading

position, we believe it should benefit from any further uptick in the containership sector.

Upgrade in order-win assumptions.

orders in 3Q10 with pockets of orders in 4Q10. Given an expected strength in

containership orders in 2011, we upgrade our order assumption from US$800m to

US$1bn for 2011 and our FY11-12 earnings estimates by 3%. We keep our FY12 order

assumption of US$1.2bn intact.YZJ had secured about US$1.3bn worth of

Moving up the value chain

Win-win partnership with CSBC.

industry has made it the preferred yard for Taiwanese shipbuilder, CSCB, in the latter’s

first-ever partnership with a Chinese shipbuilder. CSBC has the strength in shipbuilding

design and technology while YZJ’s production capacity is twice that of CSBC’s total production

capacity from yards in Keelung and Kaohsiung. We believe further collaboration is on the way

between the two. CSCB is considering diverting part of its shipbuilding process to the mainland in

Riding consolidation wave in China.

China State Shipbuilding Corp, declared that the Chinese shipbuilding industry will

encounter a wave of consolidation with more M&As over the next few years, eliminating

30% of the existing players. With YZJ’s strong balance sheet, we expect more M&As as

YZJ can take on several smaller yards to expand its capacity.

This year alone, it has been building up capacity and capabilities through joint ventures and

M&As and the acquisition of new land in preparation for more order wins and larger vessel wins.

Valuation and recommendation

Expect upgrades in consensus estimates.

FY11-12 consensus estimates appear too low and a blanket upgrade by the Street

is very possible as the market could have underestimated YZJ’s profit margins and revenue recognition.

Maintain Outperform with higher target price of S$2.57 (from S$2.15),

on 14x (from 11x, average since listing) CY12 P/E, in line with the average for Chinese

peers. Stock catalysts could include stronger-than-expected order wins and margins, in

our view.now basedYZJ is our preferred Chinese shipbuilder for its quality execution and strong financials. Recently, China Shipbuilding Economy Research, an affiliate of state-owned

view of the lower labour costs there (one-third of Taiwan’s) while YZJ is moving up the

value chain hoping to secure orders for larger containerships (above 4,500 TEUs).We believe YZJ’s dual listing in Taiwan as well as its impeccable track record in the shipbuilding The crisis may have booted out smaller shipyards from the industry, leaving state-owned and A spike in containership newbuilding occurred in 3Q10 with 62 vessels ordered globally. Top privately-held Chinese yard by container orders.

If more cash-rich owners are indeed out on a newbuild spree and assuming orders

match the 2006/2007 order peak, the supply-demand balance by end-2011 could still

be favourable with an estimated order book ratio of 15%.Containership orders could return to 2007 peak.

believe the strength in containership orders could make up for softer demand for bulk

carriers in 2011. As such, we upgrade our order assumption from US$800m to

US$1bn for 2011 and our FY11-12 earnings estimates by 3%. Our higher target

price takes into account our earnings upgrade and a higher P/E of 14x (from 11x, its

average since listing), now set in line with the average for Chinese peers in view of

the revival in the containership sector. Stock catalysts could include stronger-thanexpected

order wins and margins, in our view.Maintain Outperform with higher target price of S$2.57 (from S$2.15).