Date
19 October 2017

Guangzhou Shipyard to go full steam ahead after relocation

Guangzhou Zhujiang Brewery Co. Ltd. (002461.CN) has agreed to relocate its headquarters from the city’s old town, and the compensation it will receive from the municipal government gives investors a clue to the true value of Guangzhou Shipyard International Co. Ltd. (GSI) (00317.HK, 600685.CN), which sits on an even larger site on the riverside downtown.

Guangzhou will pay Zhujiang Brewery about 2.3 billion yuan (US$377 million) for the industrial land with an area of 173,800 square meters, or about 13,222 yuan per square meter, which is in line with previous estimates. The brewery will move its production line to Nansha.

Based on this compensation, GSI will probably get 7.27 billion yuan for moving its 550,000 square meter shipyard out of the city center. The amount is lower than market expectations but still represents 80 percent of the company’s market value as of Wednesday.

GSI is traditionally one of the key shipbuilding contractors for official vessels in southern China. That largely explains why the state-owned shipbuilder has managed to stay afloat despite the industry downturn over the past few years.

The company’s outlook has become even brighter after Beijing recently raised the entry barrier in the industry and eased restrictions on ship demolition subsidies. Meanwhile, China urgently needs more law enforcement vessels to patrol disputed waters in both the East China Sea and South China Sea, which means more government orders for the company.

In fact, the major hindrance to GSI’s growth is capacity constraint due to its confined location in Guangzhou. But this problem will be solved soon once the company moves its production base to a newly acquired shipyard in Nansha, where capacity is seven times its current size.

– Contact the writer at [email protected]

CG

 

 

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