Yangzijiang Shipbuilding Holdings remains one of DBS Group Research's top picks to weather macro uncertainties. With whopping contracts totaling US$2.5 billion ($3.57 billion), the best is yet to come, writes DBS analyst Ho Pei Hwa.
In an Oct 7 note, Ho reiterates “buy” on Yanzijiang with a target price of $1.40. “It is amongst the most well-run, cost-efficient and profitable shipyards in the world. Earnings delivery over the next three years are backed by a historical high order backlog with potential further upside from LNG carrier orders.”
Despite Yangzijiang’s “wide economic moat” and “rosy prospects”, valuation remains undemanding, says Ho, at 1.1x P/B and 6x FY2022 P/E against 15%-20% earnings per share (EPS) growth, 15%-16% return on equity (ROE) and 5% dividend yield.
Yangzijiang has secured new orders for 22 vessels worth US$2.5 billion, lifting year-to-date (ytd) wins to US$3.6 billion.
“This includes 12 units of 16k twenty-foot equivalent unit (TEU) dual-fuel containerships, which we believe is from Mediterranean Shipping Company, that was reported on Tradewinds and highlighted in our Yangzijiang report in early-September 2022. In addition, Yangzijiang has also clinched some small-to-mid sized bulk carriers orders — 6 units of 66k deadweight (DWT) bulkers and 4 units of 32k DWT bulkers,” writes Ho.
Together with the 18 vessels secured in 1H2022, total new orders won ytd amounted to US$3.6 billion. Yangzijiang’s orderbook is also lifted to US$10.27 billion, from US$8.13 billion as of August 2022, implying revenue coverage of 3.4 years.
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Ho is watching maiden LNG carrier orders. “The award of the GTT licence is a critical breakthrough that paves the way for LNG carriers orders. We understand that Yangzijiang has been in talks with a handful of potential customers for LNG carrier orders. Of which, a Danish company, Celsius Tanker is reportedly close to awarding up to 12 LNG carriers to Yangzijiang [and] China Merchant Shipyard.”
According to Ho, assuming a 5% discount to current newbuild price of US$240 million for 174k cubic meters (cbm) LNG carrier and Yangzijiang secures at least half of the Celsius Tanker’s potential newbuild orders, six to 12 units of LNG carriers could translate to US$1.4-2.8 billion contract value for Yangzijiang.
Meanwhile, executive chairman and CEO Ren Letian says the company is also looking to invest in a new production line to meet the strong demand and the market needs in the long term.
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According to Ho, Yangzijiang has been very prudent in yard expansion since listing. “The CEO's remarks are a very strong statement, in our opinion. It underscores management’s confidence in winning LNG carriers in a big way, making it their next mainstream product to compete against its Korean peers. Judging from their past track record and efficiency, a decision could be made in the next few months and new capacity might come online as early as 2024 and deliver vessels from 2026. This is crucial as most established LNG carrier builders are full through 2027.”
As at 12.05pm, shares in Yangzijiang are trading 8 cents higher, or 7.27% up, at $1.18.
