Lower profit margins owing to weaker demand have hit third-quarter profits at Yangzijiang Shipbuilding group despite significantly better revenue.

The shipbuilding and offshore engineering company reported a net profit of 680.7 million yuan (S$150.4 million) for the third quarter, a fall of 16 per cent from the same period last year.

Revenue for the three months to Sept 30 was 4.136 billion yuan, up 10 per cent from last year.

The Chinese shipbuilding industry is going through "one of the most challenging years in recent history", executive chairman Ren Yuanlin said in a statement. The oversupply of container ships and dry bulkers is expected to continue, and competition in the market has intensified, he added.

"Facing the tough environment, we have become more flexible in profit margin requirement and payment terms," he said.

The shipbuilding-related business remained the group's main revenue driver, contributing 91.3 per cent, or about 3.8 billion yuan, of the group's revenue in the third quarter. The gross profit margin of the shipbuilding business was 18 per cent this quarter, down from 21 per cent last year.

This was due to a higher proportion of revenue coming from vessels contracted in recent years with lower profit margins, Yangzijiang said in a statement.

A Maybank Kim Eng research report said margins would likely deteriorate further. "What we see are weakening prices that validate our view of a more severe deterioration in its shipbuilding margins," the report said. It added that Yangzijiang's new products, Liquefied Natural Gas Carriers and Very Large Gas Carriers, are also likely to yield lower margins.

Earnings per share for the three months was 17.76 fen, down from 21.17 fen last year. Net asset value per ordinary share was 567.91 fen as at Sept 30, up from 534.30 fen on Dec 31 .

Yangzijiang cited Clarkson Research showing new shipbuilding orders around the globe slumped 45 per cent year on year. The slowdown in new orders was more severe at Chinese shipyards, Yangzijiang added.

It also announced that from September to October, it had entered into shipbuilding contracts worth a total of US$730 million (S$1 billion) for 12 vessels.

The contracts are scheduled for deliveries in 2017 to 2018 and, therefore, would not have any significant impact on the earnings of the group this year, it said.

The counter fell one cent or 0.8 per cent to close at $1.25 yesterday