Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) is, as its name suggests, mainly a ship-building company. In 2014, 89% of its revenue had come from its shipbuilding related activites.
But, Yangzijiang has been slowly exploring new areas of growth with one of them being the offshore oil and gas sector. Will Yangzijiang’s search for new opportunities make it a threat to the mighty rig builder Keppel Corporation Limited (SGX: BN4) in the future?
Risks to the rig builders
Based on what Yangzijiang said in its 2014 annual report, Keppel Corp may rest easy. In 2014, 5% of Yangzijiang’s revenue had come from the firm’s maiden jack-up oil rig project. But, the shipbuilder declared that it will stop actively searching for more of such projects, as it “has yet to attain the competitive advantage that leads to superior profit margins in this sector.”
So, it seems that successful rig builders like Keppel Corp and SembCorp Marine Ltd (SGX: S51) actually holds some competitive advantages over traditional shipbuilders who might be interested in stealing their market share.
But, shareholders of the Singapore-based rig-builders (myself included) should not be too complacent. Both Keppel Corp and SembCorp Marine had started out as shipbuilders that worked on lower-value projects.
After years of research and improvements made to their processes and technological capabilities, both companies have now become powerful players in the rig-building space.
This is a cautionary tale in that what happened to them may happen to other shipbuilders as well. And with hundreds of Chinese shipbuilders out there, we shouldn’t be surprised if one of them does manage to compete effectively with the likes of Keppel Corp and SembCorp Marine.
Yangzijiang Shipbuilding is a fine example of a Chinese shipbuilder that’s constantly strengthening its own capabilities. The company commented in its 2014 annual report that its efforts in research and development have borne some fruits and had shortened the technological gap between the company and the leading Japanese and South Korean shipyards.
As an example, Yangziiang wrote that it was “the first PRC [People’s Republic of China] yard to receive an order for a 10,000 TEU [twenty-foot equivalent unit] containership, formerly the domain of South Korean yards.”
It seems that the only way for a company in the rig- or ship-building space to always stay ahead of the pack would be to have the gumption to constantly renew itself, break new grounds, and carve out new niches to be a leader of.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Keppel Corporation Limited.