CGS-CIMB analyst Lim Siew Khee has maintained her “buy” call on Yangzijiang Shipbuilding with an unchanged target price of $1.37.
See also: Yangzijiang secures 5 new vessel orders
In a report dated Oct 16, Lim said that there was a “strong uptrend for Transpacific spot rates”, which may suggest that demand is matching capacity deployment.
In September, riding on the traditional year-end peak season, the SCFI (Shanghai Containerized Freight Index) Shanghai to West Coast America rose about 170% y-o-y to an all-time high of US$3,831 ($5,202) per forty-foot equivalent unit (FEU), the highest since 2009.
The SCFI for Shanghai to East Coast America also went up about 87% y-o-y, reaching a high of US$4,590/FEU since 2015.
Shipments to other regions were encouraging as well, with Shanghai to Europe reaching a modest high of US$1,085/FEU, while Panamax grain bulk carriers staged a recovery to the pre-Covid average of US$32.3/tonne in September 2020.
Lim also cited an encouraging rise in ocean rates and positive outlook by liners, which could spur new build orders.
YZJ’s orderbook of US$700 million year-to-date is on track to hit US$1.1 billion, up 33% y-o-y which is, “defying the disruptions of Covid-19” she noted.
From the 2020 orders won, she sees that there are options for another 22 vessels, amounting to about US$1.29 billion to be exercised in 2020-2021, and improving earnings among shipowners could accelerate these options.
As YZJ’s yard operations remained unchanged q-o-q, she expects YZJ to deliver at least 15 vessels in 3Q20 and a steady q-o-q net profit of RMB700-750million ($141 million - $151 million), relatively stronger than its Singapore peers.
Shipbuilding gross margin also appears likely to normalise to about 16-18% in 3Q20, on the absence of vessel resale gains which were present in 2Q20.
See also: Expect stronger q-o-q revenue from Yangzijiang in 3Q20, says CGS-CIMB
Lim also noted its strong net cash of RMB4.4 billion (22 Singapore cents per share) at end-June 2020 should sustain an above market yield of 4.3%, and it is currently trading at a new trough and undemanding valuations of 0.56x 2020 price-to-book value (P/BV),
As at 12.31pm, shares of YZJ traded at 98 cents, with a FY20 price-to-book ratio of 0.55 and a dividend of 4.36%.
