Guangzhou Ship Fourth-Quarter Profit Falls 49% on Higher Costs

Guangzhou Shipyard International Co., the sole Hong Kong-listed shipbuilder, posted a 49 percent drop in fourth-quarter profit because of higher labor and inventory costs. Net income fell to 134 million yuan ($20 million) for the three months ended Dec. 31, according to numbers derived from 2008 earnings announced by the company late yesterday. Sales decreased by 3.5 percent to 2.17 billion yuan.
Guangzhou Shipyard and other Chinese rivals may struggle to win new orders this year as global trade could shrink for the first time in almost three decades because of the recession. Guangzhou could also see order cancellation and delays, Morgan Stanley said today.
“We view the disappointing 08 earnings as a negative catalyst for Guangzhou Shipyard and recommend investors to sell the stock,” Morgan Stanley’s Andy Meng said in a note. The company posted an operating loss for the fourth quarter, the worst performance since 2003, the brokerage said.
Guangzhou Shipyard fell 0.2 percent in Hong Kong trading to HK$8.33 at 11:10 a.m. The shares have gained 17 percent this year, compared with a 16 percent decline in the benchmark index.
The 2008 gross profit margin for shipbuilding narrowed by 2.9 percentage points from a year earlier to 14 percent, the statement said. UBS AG cut its recommendation to “neutral” from “buy” and said profit margins will only bottom in 2011. Morgan Stanley rates the shares “underweight.”
The yard completed 18 vessels and started work on 19 during the year ending Dec. 31. The builder had orders for 63 vessels, or 2.8 million deadweight tons as of Dec. 31, the statement said, without giving a year-earlier figure.
The rising value of the yuan against the dollar also contributed to lower profitability last year, the statement said. Guangzhou Shipyard booked 137 million yuan of losses on foreign- currency derivatives during the period, it said.