Analysts from DBS Group Research and CGS-CIMB Research have both maintained their respective “buy” and “add” calls for Yangzijiang Shipbuilding with increased target prices after the company announced its FY2020 results on Feb 25.
Yangzijiang’s 4QFY2020 earnings increased 17% y-o-y on the back of stronger margins from delivery of large-sized containerships. However, full-year earnings fell by 19% to RMB2.5 billion ($518.0 million) due to forex losses.
But DBS analyst Ho Pei Hwa notes that despite the losses, Yangzijiang’s earnings remain broadly in-line with expectations and show commendable performance.
“It would have been a stellar year with stronger-than-expected shipbuilding margins, if not for significant forex loss of over RMB800 million in 2HFY2020, arising from translation loss of USD bank deposits and USD-denominated shipbuilding construction contract assets as USD softened,” she writes.
She also maintains that Yangzijiang is well-positioned to ride the recovery of the shipping market given its contract pipeline.
“Recent whopping contract wins of US$1.3 billion ($1.73 billion) in Jan 2021 is a very positive indicator of buoyant newbuilding market and could recur in Feb 2021 as well,” she adds.
Ho maintains her positive recommendation in view that Yangzijiang is trading below cash.
“While its share price has risen some 20% in three months, it has yet to fairly reflect the improving fundamentals and order momentum close to that of the supercycle in 2007,” she writes.
In her view, the market has “over-penalised” the group for its debt investments, where most of it are backed by collaterals of 1.5 times to 2.5 times.
Her higher target price of $1.50 from $1.40 reflects the rollover in valuation multiples to FY2021 estimates, higher order win assumptions for 2021, and a 10% lifted earnings forecast for 2022.
Meanwhile, Lim Siew Khee of CGS-CIMB has raised her target price from $1.37 to $1.54 despite cutting earnings per share (EPS) forecasts to account for higher administrative expenses to reflect potential forex loss. The higher target price reflects higher FY2022 EPS underpinned by the stronger order book.
“We like Yangzijiang for its earnings visibility, strong net cash of RMB2 billion as at end-2020 as well as reputable track record in shipbuilding. We estimate Yangzijiang’s order book could reach a 5-year record of US$4.8-5 billion by end-FY2021. We now value Yanzijiang based on five-year average P/BV of 0.8 times FY2021 P/BV,” she writes.
Lim also notes Yangzijiang’s potential to focus on larger projects that could help sustain overall margins moving forward.
“Given its strong momentum achieved since 2HFY2020, we think Yangzijiang could cherry pick, selecting only good quality contracts/clients. Yangzijiang guns for sizeable contracts with a series of ten or more units to reap economies of scale and preserve margins,” she adds.
As at 1.39pm, shares in Yangzijiang are trading 1 cent higher or 0.93% up at $1.08.
