Waertsilae Rises on Chinese Engine Partnership

Waertsilae Oyj rose the most in six months after the Finnish maker of power plants and ship engines raised its profit forecast because of a joint venture with one of China’s biggest shipmakers.

Waertsilae will move its two-stroke engine business to a joint venture established with China State Shipbuilding Corp., it said today. CSSC accounts for about a quarter of China’s newbuild capacity and is one of the two biggest state-owned ship manufacturers in the country along with China Shipbuilding Industry Corp. Waertsilae will hold a 30 percent stake in the venture.

“These state-owned shipyards are the dominant players on the market,” Chief Executive Officer Bjoern Rosengren said in an interview. “China is our priority market because that part of the world is where all the ships are being built.”

The company is seeking to increase market share in auxiliary engines for merchant ships with the aid of partnerships, Rosengren said. The company also said today that it will set up another joint venture with CSSC, focusing on medium- and large-bore medium-speed diesel and dual-fuel engines. It will invest 12 million euros in the enterprise for a 49 percent stake.

Waertsilae’s shares gained as much as 6.9 percent, the biggest jump since Jan. 9. The stock was up 5.9 percent at 38.12 euros as of 1:24 p.m. in Helsinki, where the company is based, taking the advance to 6.6 percent this year.

Order Backlog

“Our first take on the measures is positive, as Waertsilae’s position in the two-stroke engines has been weak and there’s surely a need for a strong partner,” Juha Kinnunen and Petri Aho, equity analysts at Inderes Oy, said in a note today.

Waertsilae raised its full-year forecast for earnings before interest and taxes excluding one-time costs to about 11.5 percent from about 11 percent. Second-quarter net income of 83 million euros beat the 74.8 million-euro average estimate of analysts in a Bloomberg survey, while the company’s ship-power order backlog rose to its highest in 4.5 years.

“I am pleased to note that the ongoing restructuring measures have already made a positive contribution to our operating result,” Rosengren said. Improved performance of the ship power and services units also compensated for the power plant unit’s low volumes, he said.

The company announced about 1,000 job cuts in January, seeking 60 million euros in annual savings. While Waertsilae’s power plant orders climbed 12 percent in the second quarter compared with a year earlier, they were still down by about a third in the first half as customers postponed large investments amid an uncertain economy.

“We see no major threats during the second half of the year,” Rosengren said. “We expect that services will continue strong and ship power will continue on its good path. Power plants should also be better than the first half.”

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