CGS-CIMB Research analyst Lim Siew Khee has estimated that mainboard-listed Yangzijiang could lift its order guidance to US$5.5 billion to US$6 billion ($7.39 billion to $8.06 billion) from US$5 billion for 2021 with a “strong outlook” into 2022.
Lim’s estimates come after the shipping group announced contract wins of US$715 million on June 23, bringing year-to-date (y-t-d) order wins to US$4.72 billion and its order book to US$7.3 billion.
See also: Yangzijiang wins another US$715 mil worth of new orders, adding on to its best year since 2008
It also takes into consideration the rise of the shipping index and the momentum of orders in the 1HFY2021.
To manage the tight yard capacity, Lim believes Yangzijiang could subcontract portions of work to its neighbouring smaller yards or fabricators.
“We had estimated that its main yard was full with delivery stretched till 1QFY2024 for large ships and 3QFY2023 for smaller ships. However, the latest win shows that Yangzijiang is still able to deliver ships from 2022,” she writes in a June 24 report.
“The prices for these new contracts could be relatively higher (10%) to factor in potential delays in delivery of other ships. With the Shanghai Containerized Freight Index (SCFI) remaining high at a record level of [around] 3,700, we think shipping clients could be pressed for slots and will pay to secure the space,” she adds.
Lim has kept “add” on the group with an unchanged target price of $1.63, which has factored in US$5 billion and US$2.5 billion of new wins in 2021 and 2022 respectively.
She has also maintained her shipping growth model (GM) forecast of 17%-20% for FY2021-FY2022 (1QFY2021: 14.7%, FY2020: 20.7%) with the execution of higher value contracts secured.
“Contracts secured recently buffer in a steel price of RMB6,500 ($1,351.51)/tonne vs. 2020’s RMB5,500/tonne. The recent easing of steel prices should allay concerns of margin compression,” writes Lim.
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Upsides to Yangzijiang’s share price could come from a continued order win strength into 1HFY2022 while downside risks include a sharp appreciation in steel prices and the renminbi, she says.
Shares in Yangzijiang closed 1 cent higher or 0.7% up at $1.41 on June 29.
