China Rongsheng Heavy Industries Group, China's largest private shipbuilder, issued a surprise warning that it expects to post an annual net loss for 2012 on sharp declines in orders and prices of new vessels after the shipping industry took a downward turn during the year.
The warning contrasted with a consensus estimate for a 584 million yuan ($93.76 million) net profit for the year ending December 2012, according to 11 analysts polled by Thomson Reuters.
A global shipping slump has forced many small and medium-sized shipbuilders out of business or placed them on the verge of bankruptcy as shipowners cut new orders, delay deliveries or outright cancel outstanding orders.
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New ship orders for Chinese shipbuilders fell 45 percent in the first 10 months of 2012 to 16.4 million deadweight tones (DWT), based on data from the China Association of the National Shipbuilding Industry (CNSI).
"The company believes that the net loss is primarily attributable to the decline in the shipbuilding market during the 11 months ended 30 November 2012," it said in a filing to the Hong Kong stock exchange.
Rongsheng was hit by an insider dealing scandal last year involving a company owned by its major shareholder, Zhang Zhirong, who stepped down as chairman last month and was replaced by chief executive officer, Chen Qiang.
The shipbuilder has been diversifying into offshore engineering to help weather the industry downturn.
Shares of Rongsheng ended down 1.5 percent on Monday and have lost 37 percent of their value this year, underperforming a 22 percent gain on the Hang Seng Index.
In August, Rongsheng reported its sharpest fall in half-year profit, down 82 percent, to 215.8 million yuan ($34.65 million)on a dearth of new orders, putting further pressure on its stretched balance sheet.
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"Management expects to incur a net loss for year 2012, suggesting further deterioration in earnings as the company struggles to win more orders and monetize lower-margin jobs," JP Morgan said in a research note on Monday.
Rongsheng was exposed to re-financing risks or cash calls, analysts also said.
In an uncertain profit outlook, the shipbuilder's estimated free cash flow in 2013-14 was unlikely to be enough to lower net debt, Citi said in a research report on Dec. 10. Rongsheng had net debt of about 17 billion yuan, it added.