Uob Kay Hian analyst Adrian Loh has kept “buy” on Yangzijiang Shipbuilding with an unchanged target price of $1.76, as the group is racing towards securing a record number of order wins in 2021.
The group currently has slightly over US$4 billion ($5.33 billion) generated in new orders year-to-date (y-t-d) in 2021.
To put things in context, Yangzijiang secured a record US$5 billion in new order wins in 2007.
In the past 12 months, from March 2020 to April, the group has won US$5.42 billion in orders. Of the 115 vessels ordered, 81 – or 70% – are containerships.
SEE:Yangzijiang Shipbuilding gets a strong 'buy' amid improving margins and higher order book: analysts
“We believe this order momentum can be sustained as the number of vessels on order globally is at a 15-year low,” writes Loh in a May 19 report.
The number of containerships on order, currently stand at 284 in 2021 y-t-d compared to the 900 of such ships in order in 2005.
“Notably, the vessels that have seen a pick-up in orders are the small (1,000-4,000TEU) and large-sized (>5,000TEU) vessels,” he adds.
“Also, we highlight that the number of vessels on order closely tracks the container timecharter index, with the latter seeing a material increase y-t-d in 2021,” he adds.
The way he sees it, one potential conclusion is that orders for new container vessels will continue to flow to shipbuilders in 2021 and 2022.
Loh is also positive on Yangzijiang’s exposure to dual-fuel LNG vessels, as a ship owner has revealed that it will be “increasingly difficult” for owners to order 100% fuel oil or marine diesel-powered vessels, especially for medium- to large-sized vessels.
“The cost differential between LNG- powered vessels and traditional vessels has come down from a 20% premium five years ago to about 5% or less. Yangzijiang has already garnered orders for six dual-fuel vessels of which two are very large containerships. Having such early exposure to this niche segment bodes well for Yangzijiang’s long-term shipbuilding prospects, in our view,” he says.
Small- and medium-sized containerships have seen increased levels of scrapping in the past decade. Small-sized containerships have seen some 50% of its total fleet scrapped in 2021 while 30% of medium-sized vessels were scrapped y-t-d in 2021.
“While the supply of small feeder containerships (ie <1,000TEU) is unlikely to materially increase in the next few years, given that orders have been in single digits since 2011, orders for medium-sized vessels appear to have meaningful upside, in our view,” says Loh.
Loh’s current target price estimate is based on an aggregate of UOB Kay Hian’s price-to-earnings (P/E) and price-to-book (P/B) valuation methodologies.
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“Our P/E valuation of $1.89 is based on a target 10 times multiple (+1 standard deviation or s.d. above the company’s past five-year average P/E) and pegged to our 2022 earnings per share (EPS) estimate. Our target P/B multiple of 0.9 times is 1 s.d. above Yangzijiang’s past-five-year average resulting in a P/B valuation of $1.62.
Shares in Yangzijiang closed 2 cents higher or 1.4% up at $1.45 or 0.8 times P/B, according to UOB Kay Hian’s estimates.
