UOB Kay Hian (UOBKH) analyst Adrian Loh has kept his “buy” call on Yangzijiang Shipbuilding (Holdings) BS6 with an unchanged target price of $1.58.
Loh’s positive outlook on the group comes as he notes the group’s continued positive momentum in new order wins and its ambitions within the liquefied natural gas (LNG) space. During its results briefing in late February, Yangzijiang announced that it had clinched new orders for 14 new vessels with a total contract size of US$0.91 billion ($1.21 billion). The new orders, along with another order win of US$700 million for 12 tankers, had brought Yangzijiang’s order wins year-to-date (ytd) to US$1.6 billion, which is more than halfway to the group’s full-year target of US$3 billion in orders.
“The company stated that it will target mostly tankers in FY2023 as its clients appear to have shown less appetite for other types of vessels. Including the recent tanker orders, we estimate that Yangzijiang has a total outstanding orderbook in excess of US$11.7 billion, with deliveries extending into 2026,” Loh writes.
Following the group’s entry into the LNG space in 2019 where it acquired a 55% stake of Jiasheng terminal for RMB308 million ($59.9 million), Loh sees the terminal to contribute to the group’s profit in 2025 at the earliest.
In addition, the analyst sees no impact on the winding petition order of the group’s subsidiary, Yangzijiang Shipping Pte Ltd. The subsidiary received the winding up application from Trinity Seatrading in January where there was a dispute regarding US$4.8 million in profit from the sale of a tanker.
“We understand that liquidators have already been appointed, and Yangzijiang Shipping has until around mid April to appeal this winding-up order. However, we highlight that Yangzijiang Shipping is a dormant company, has negligible net asset value and if wound up it will not have any material impact on Yangzijiang itself. In the worst-case scenario, a provision of around US$5 million would amount to less than 1% of [Loh’s] estimated FY2023 earnings [for the group],” the analyst writes.
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However, Loh also notes that Yangzijiang had been seeing a drop in its shares since it announced its results for the FY2022 ended Dec 31, 2022, on Feb 23.
Shares in the group had fallen some 11.1% since then, underperforming the benchmark Straits Times Index (STI), which fell by around 1.4% during the same period.
To Loh, the group’s FY2022 results were strong as its operating profit grew with expansions in its shipbuilding margins.
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The group had, however, reported declines in both its 2HFY2022 and FY2022 earnings, which fell due to the spin-off of its financial unit.
As such, the analyst attributes the “dull” share price performance to a lack of clarity regarding the group’s capital management.
In his report dated March 23, Loh sees room for the group’s capital management to improve, calling it a “major issue” for the group.
“As at end-FY2022 and on a per share basis, Yangzijiang had RMB1.61 or 31 cents in net cash but the company nevertheless chose to only mildly increase its FY2022 dividend to 5 cents,” he points out.
“Its February acquisition of the remaining 45% stake in the Jiasheng Gas to bolster its LNG ambitions cost RMB430 million out of its end-FY2022 cash hoard of RMB10.8 billion,” he says
“In our view, and in light of our forecast free cash flow of RMB2 billion in FY2023, the company could easily have afforded to be more generous to its shareholders by raising its dividend,” he adds.
Loh has so far kept his earnings estimates unchanged.
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Based on his unchanged target price, the analyst notes that the group would trade at an FY2023 P/B of 1.3x, a level that was last seen in FY2012.
To him, better capital management from the group, evidence of margin expansion from FY2023 as well as new orders in higher-margin shipbuilding segments are catalysts to the group’s performance.
As at 3pm, shares in Yangzijiang are trading 5 cents higher or 4.17% up at $1.25.
