Briefing4.15Dr Diao Weicheng, executive chairman of AVIC Maritime (third from right), is flanked by CEO Sun Yan (on his right) and other key management staff. Photo: Company

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. 

drdiaoweicheng10.14.cDr Diao Weicheng, executive chairman of AVIC Maritime: "We are focused on expanding our ship design and EPC businesses." NextInsight file photoAVIC 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

Stock price 
(13 May 2015)
11.4 cents
52-week range 7 – 15 cents
PE (ttm) 10.5
Estimated P/E (12/2015) Not available
Market cap S$33 million
Price/book 0.79
Dividend yield
Bloomberg data

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. 

New initiatives

» In March this year, a change of major shareholding of AVIC Maritime via an internal restructuring took place. AVIC International Kairong transferred its 73.87% stake in AVIC Maritime to AVIC International Holdings Limited, a Hong Kong listed company with a market cap of HK$10.4b in April 2015.

“This allows the Group to enjoy stronger support from a major shareholder with better financing leverage,” said AVIC 

» One of the Group’s subsidiaries, AVIC International Offshore Pte Ltd, is acquiring 60% shareholding of AVIC Zhenjiang Shipyard Marine (“AZM”). AZM is in the business and trade of acquiring, owning, selling, brokering and chartering of various types of vessels, including but not limited to tugboats and offshore vessels.

» AVIC Maritime has also recently announced the proposed acquisition of 100% of Shanghai Catic Industrial Co., Ltd at book value for RMB207 m (S$45 million) cash. The target company owns a plot of land in the Shanghai Free Trade Zone which AVIC Maritime intends to redevelop into its HQ.

The project has a total development floor area of up to 97,800 sq m, of which 30% will be for AVIC Maritime’s use. The rest will be sold and is expected to contribute positively to the Group’s bottom line and further strengthen its financial resources.

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