Dahua Jixian downgraded China Rongsheng heavy Industries (1101.HK) to sell from hold because of the company's disappointing fiscal year 2011 results, which cut its target price from HK $2.74 to HK $2.15, or 0.7 times the share price / book value of fiscal 2013.

Dahua said that Rongsheng's net profit of 1.72 billion yuan in fiscal 2011 was much lower than the agency's forecast of 2.68 billion yuan. this is partly due to a sharp drop in gross profit margins (from 27.8 per cent in the second half of 2010 to 16.3 per cent in the second half of 2011) as a result of lower-than-expected revenue from the super-large ore ships built by Vale SA.

Dahua added that its recent inspection of shipyards showed that the industry was facing great difficulties and that as a highly indebted shipbuilder with a net debt ratio of 1.24 times, Rongsheng's balance sheet could be an uncertain factor. although the company has a strong ability to obtain financing from banks.