AVIC INTERNATIONAL MARITIME (AVIC Maritime), with its blue-blooded parentage and a recovery in profitability, is a stock to watch.
AVIC Maritime also has big moves ahead. One of these is to consolidate two shipyards of its PRC parent into the group, a plan first mentioned in an announcement posted on the SGX website in June 2014.
AVIC Maritime will discuss with the Singapore Exchange on the criteria for enabling that to happen, said AVIC Maritime executive chairman Dr Diao Weicheng in a recent corporate update with the media.
One of the two shipyards is close to profitability and will be the first to be injected into AVIC Maritime, said Dr Diao.
The yards -- AVIC Weihai and AVIC Dingheng shipyards -- are sited on land area totalling 1.8 m sq m and are among the 59 yards on China's 'white list' which is supported by the Chinese government.
When injected into AVIC Maritime, the two yards will lead to a bigger asset base with a potentially higher revenue and earnings stream, and perhaps boosting AVIC Maritime's market capitalisation which currently stands at only about S$33 million.
Its stock recently traded at 11.4 cents, translating into a historical PE of about 10.5X.
AVIC Maritime is a member of one of the largest industrial groups authorised and managed by the PRC’s Central Government -- the Aviation Industry Corporation of China Group, which was ranked 178 among Fortune Global Top 500 corporations in 2014.
Listed in Singapore since 2011, AVIC Maritime has developed two growth drivers in recent years in the face of a declining global shipbuilding market.
Although 2014 revenue of RMB 455 million represented a decline of 24% year-on-year, its profit after tax surged 189% to RMB17.2 million. There was a sharp decline in revenue contribution from its low-margin shipbuilding construction services segment which was offset by a maiden contribution from the EPC segment.
» Ship design contributed 53% of the revenue. This came from Finland-based Deltamarin which AVIC Maritime bought a 79.57% stake in in 2013.
Deltamarin is said to be a “forerunner in naval architecture and engineering, developing cost-efficient vessels.”
It has completed over 5,000 complex ship design and marine engineering projects, involving vessels such as luxury cruise ships, yachts, and RORO ships. In 2014, it took part in the design of the world's first LNG-powered icebreaker.
» EPC (engineering, procurement and construction) segment contributed 17% of revenue. This came from a JV that AVIC Maritime set up with Deltamarin in 2014.
Although it was loss-making, “this is a new growth engine and represents a new trend in shipbuilding industry,” said AVIC Maritime.
As an EPC contractor, AVIC Maritime helps ship owners in cost management and quality control with integrated services in project management, integration projects, flag handling, procurement, manufacturing, logistics, construction, commissioning and debugging of the entire vessel.
» The rest of the 2014 revenue came from a range of shipbuilding-related services, especially management and consultancy services for ship owners and ship builders, and arranging marine financing.
Management and consultancy -- a long-time core business -- contributed significantly to AVIC Maritime's profit.