CGS-CIMB Research analyst Lim Siew Khee has reiterated “add” on Mainboard-listed Yangzijiang Shipbuilding with a higher target price of $1.91 from $1.63 previously.
Lim’s report, dated Aug 2, comes after the group signed new orders for a total contract value worth US$1.08 billion ($1.46 billion).
The new orders bring year-to-date (y-t-d) orders for the group to US$6.67 billion and its orderbook to US$8.74 billion.
As the group will report its results for the 2QFY2021 on Aug 5 after market closes, Lim estimates gross margins for shipbuilding in the quarter to be lower at 12% to 13% compared to the 15.9% posed in the 1QFY2021. This, she explains, is given the 19% q-o-q rise in steel prices.
That said, the group’s net profit could be boosted by the sale of its own fleet of bulk carriers, which Lim estimates to be in the range of RMB680 million ($142.1 million) to RMB710 million, which is 10-12% lower q-o-q.
In addition to her higher target price estimate, Lim has upped her earnings per share (EPS) estimates for the FY2021 to FY2023 by 1% to 26%.
She has also lifted her order win forecast for the FY2021 by 60% to US$8 billion, offset by lower gross margins.
“We think the strong orders y-t-d should lead to positive share price movement,” writes Lim.
“It trades at a steep discount to the Korean shipbuilders - Korea Shipbuilding & Offshore’s 0.85 times 2021 P/BV and Hyundai Mipo Dockyard’s 1.5 times 2021 P/BV - although KSOE secured [around] US$12 billion of new contracts and HMD US$3.6 billion in 1HFY2021,” she adds. “Yet, we think profitability matters.”
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To Lim, a strong order win momentum and good margin preservation are key catalysts to Yangzijiang’s share price, while a sudden plunge in freight rates is a key risk.
As at 1.45pm, shares in Yangzijiang are trading 2 cents higher or 1.4% up at $1.41, or 0.73 times P/B, according to CGS-CIMB’s estimates.
