Analysts from CGS-CIMB Research and UOB Kay Hian remain positive on Yangzijiang after the Mainboard-listed shipbuilding company announced its order win of US$871 million ($1.17 billion) on June 30, one week after it secured US$715 million worth of new orders.
CGS-CIMB analyst Lim Siew Khee has kept “add” on the counter with an unchanged target price of $1.63 while UOB Kay Hian analyst Adrian Loh has maintained his “buy” call with a higher target price of $1.90 from $1.76 previously.
To Lim, the group has “struck gold” but remains an unappreciated counter.
The new wins are close to her shipbuilding gross margin (GM) forecast of 17% to 20% for the FY2021-FY2022, notes Lim.
See also: UOB Kay Hian keeps 'buy' on Yangzijiang as it sees more upside for the containership market
As at June 25, the Shanghai Containerised Freight Index (SCFI) reached 3,785 points.
“[With] the latest orders for Yangzijiang… shipowners could be taking a bullish view on freight rates in the medium term,” writes Lim in a June 30 report.
The near-term container market outlook also remains “firmly positive”, according to Clarksons Research. This is due to the “robust trade and ongoing logistical disruption and port congestion, against the backdrop of manageable supply growth through to 2022.”
To-date, Yangzijiang’s order wins have already exceeded the group’s guidance and Lim’s expectations of US$5 billion.
“We see earnings upside for FY23 earnings if the momentum continues into 2022. We have factored in US$2.5 billion for 2022,” she says.
Stronger orders for the group could serve as a share price catalyst, while a sharp appreciation of the Chinese renminbi and steel costs, as well as order cancellations, may pose downside risks, adds Lim.
UOB Kay Hian’s Loh has, too, increased his earnings forecast for Yangzijiang by 2% to 11% for the FY2021-FY2023.
This, he says, takes into account the group’s order wins from June 23 and 30.
Loh has also upgraded his new order win expectation to US$6.5 billion for FY2021 and US$4.0 billion for FY2022 from US$3.5 billion previously.
For the FY2021, Loh’s order win expectations of US$5.5 billion – one he had “considered a ‘stretch target’ in 1QFY2021” has already been exceeded.
The group’s orderbook now stands at US$7.72 billion for 160 vessels.
The containership construction upcycle also looks to remain intact, according to Loh.
“The number of containerships on order is at a 15-year low at only 302 in 2021 y-t-d vs 2005 when 900 of such ships were on order,” he notes.
“Notably, the vessels that have seen a pick-up in orders are the small (1,000-4,000TEU) and large-sized (>5,000TEU) vessels.”
In his report on July 1, Loh highlights that the number of vessels on order closely tracks the container time charter index, which has seen a material increase year-to-date in 2021.
“One potential conclusion is that orders for new container vessels will continue to flow to shipbuilders in 2021 and 2022,” he writes.
Loh’s new target price is based on a target multiple of 9.3 times, which is 1 standard deviation (s.d.) above the group’s past five-year average price-to-earnings (P/E) and pegged to his earnings per share (EPS) estimate for the FY2022.
“We have dropped the target price-to-book (P/B) multiple from our valuation methodology as we believe a pure P/E valuation better reflects the earnings upcycle that Yangzijiang is facing at present.”
“We note that at our new target price of $1.90, Yangzijiang’s 2022F P/B multiple of 1.0 times is reasonable in our view, especially given our expectation for the company to experience return on equity (ROE) expansion from 9.1% in 2021 to 13.3% in 2023,” he says.
The recent share price dip is an opportunity for investors to accumulate into the stock, notes Loh.
Yangzijiang’s share price since May has fallen some 8% from its 2021 high of $1.53.
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That said, the counter has performed “very well” this year with a 48% gain y-t-d, which investors may want to lock in their profits.
“Nevertheless, we believe that the stock continues to have meaningful upside as the stock is inexpensive, trading at 0.8 times 2021F P/B and 9 times 2021F P/E, and there are more order wins to come in our view,” says Loh.
Loh has identified share price catalysts to Yangzijiang as continued order wins and better returns on its debt investments portfolio. There were no downsides pegged in the report.
Shares in Yangzijiang closed 1 cent higher or 0.7% up at $1.44 on July 2.
