Revenue recognition for 1H09 was below our estimates, likely as a result of reschedulings of 18 vessels and a 5% rebate on eight high contracts, but overall YZJ's strategy of defending its order book and margins appears to be working.
Bottom-line was also supported by non-operating income, largely from interest income on cash and short-term investments. YZJ’s total cash and short-term investments totalled Rmb10.3 bn (S$2.1 bn) at 30 June, or S$0.59/share. Total borrowings were Rmb1 bn.
We have pushed out revenue recognition schedule (rescheduling), increased gross margins to approximately 20% (1H09: 22.5%) and raised non-operating income (1H09 was 116% of FY09E), resulting in an 11-24% increase in our 2009-11E earnings (Fig. 2).
Target price is revised to S$1.29 from S$0.6 based on 2010E P/E of 10x (previously 5x). Maintain OUTPERFORM.
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