Lim Siew Khee of CGS-CIMB has kept her "add" call on Yangzijiang Shipbuilding, following a recent contract win plus the successful sale of a stranded asset.
Coupled with better efficiency, steady material costs and firm selling prices, the company is heading for a record FY2023, estimates Lim in her Jan 18 note, who has a target price of $1.96 for this counter.
On Jan 17, the China-based shipbuilder announced it won a contract to build six dual-fuel containerships from Ocean Network Express.
The contract value was not disclosed by Yangzijiang but is estimated to be around US$1 billion, inspiring Lim to raise her order forecast for FY2024 from US$4 billion to US$4.5 billion, and the total order book to US$15.8 billion.
In another recent positive development, the company managed to sell a stranded jack-up rig for US$80 million last November. According to Lim, citing Riglogix, the buyer is Sinopec Shengli.
The rig was originally ordered by Mena Offshore Investments back in 2012 for US$170 million. The contract was terminated in 2016 and the rig's book value written down over the years to US$35 million.
According to Lim, the selling price was lower than a comparable rig sold by Dalian Shipyard late last year for US$111 million. However, the sale was on a "bare rig, as-is" basis with no reactivation service required.
In addition, Lim points out that steel prices have held steady in the last three months, after dipping from a year ago. On the other hand, selling prices of the vessels newly ordered have been held steady too.
In Lim's view, this is a plus for Yangzijiang's earnings as the company improves its efficiency, thereby giving itself a better chance of making a higher margin for the new vessels.
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"Structural demand for green energy vessels and shipowners’ profitability could keep ship prices firm, in our view," says Lim.
Her $1.96 target price is based on 2x 2024 P/B, which is a 70% premium to regional yards’ 1.2x average, given YZJ’s stronger margin track record and superior ROE of 21%, versus less than 10% enjoyed by its peers.
As at lunch break on Jan 19, Yangzijiang shares gained 1.87% to change hands at $1.63.
