China Shipbuilding Sector----------------------------------------------- Maintain UNDERWEIGHT

Comparing Yangzijiang and Cosco with Rongsheng

 Rongsheng Heavy Industries (not rated), China’s largest privately

owned shipbuilder, will commence trading on the Hong Kong

Stock Exchange on 19 November.

● Although Yangzijiang has a much smaller capacity of 2.3 mn DWT

and orderbook of US$5.3 bn, its strong execution track record has

enabled it to have the highest profitability. Gross margin was

maintained at close to 20% from 2007-2009.

● As the top producer of containership in China, with a 12% share of

the containership orderbook for Chinese shipyards, Yangzijiang is

best positioned to benefit from a potential order recovery in the

containership segment.

● Cosco has the most advanced offshore capabilities, having

delivered a semisubmersible and won an order for a drillship.

● We maintain our OUTPERFORM rating on Yangzijiang due to its

exposure to a potential rebound in containership orders, strong

execution capabilities, acquisition-led strategy to expand into the

offshore segment and attractive valuations.

Rongsheng Heavy Industries (not rated), China’s largest privately

owned shipbuilder, will commence trading on the Hong Kong Stock

Exchange on 19 November.

Yangzijiang has the best execution track record

Although Yangzijiang has a much smaller capacity of 2.3 mn DWT

and orderbook of US$5.3 bn, its strong execution track record has

enabled it to have the highest profitability. Gross margins was

maintained at close to 20% from 2007-2009.

 Yangzijiang best positioned for potential recovery in

containership orders

In terms of potential new orders in 2011 across the shipbuilding

sector, we are most positive on containerships and most negative on

bulk carriers. This is driven by a high order book/fleet ratio in the bulk

carrier segment of 60%, versus 30% for containerships and tankers.

Yangzijiang is best exposed to the containership segment, which

makes up 45% of its current orderbook. According to Clarksons,

Yangzijiang is also the top producer of containership in China, with a

12% share of the containership orderbook for Chinese shipyards.

Cosco has most advanced offshore capabilities

All three Chinese yards have expressed their ambition to diversify into

the offshore segment. Cosco has the most advanced capabilities

currently, having delivered its first semisubmersible, the Sevan Driller

in November 2009, and received an order for a drillship in July 2010.

Rongsheng has an order for a Deepwater Pipe Laying Crane Vessel

and delivery is expected by the end of this year.

Maintain OUTPERFORM on Yangzijiang

Within the sector, we prefer Yangzijiang (OUTPERFORM, TP S$2.20)

due to its exposure to a potential rebound in containership orders,

strong execution capabilities, acquisition-led strategy to expand into

the offshore segment and attractive valuations. Although Cosco

(UNDERPERFORM, TP S$1.50) has the most advanced offshore

capabilities, we remain concerned about margin risks from execution

difficulties.

Source: Credit Suisse

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