CGS-CIMB Reseach analyst Lim Siew Khee maintained her ‘add’ rating for Yangzijiang Shipbuilding with an unchanged target price of $1.54 after the company recently announced it had signed contracts to build 31 vessels for a total contract value of US$1.74 billion ($2.32 billion).
Lim says that the new contracts bring Yangzijiang’s year-to-date orders secured to a record US$3.04 billion, its highest since 2009. She currently estimates the company’s order book at US$6.1 billion and expects it to reach US$4.8-5 billion by end of FY2021.
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While the customer for the new contracts was not disclosed, Lim notes that based on Clarksons Research, Yangzijiang’s customer Seaspan had recently placed similar containership orders worth US$900m with an unnamed shipyard.
She also notes that Yangzijiang is gunning for sizeable contracts to reap economies of scale and preserve margins.
“To date, we estimate Yangzijiang having a few sets of 10 series feeder Panamax containerships (1.8k TEU, 4.6k TEU) and Panamax bulk carriers (82k dwt) to see some margin expansion ahead,” she says.
SEE: Yangzijiang Shipbuilding incorporates new subsidiary for RMB10 mil
From an industry standpoint, Lim says the near-term outlook remains positive, with the containership trade still experiencing support from widespread port congestion, robust demand conditions, and high containership freight rates.
She recommends the stock for its earnings visibility, strong net cash of RMB2 billion as of end-2020, as well as its track record in shipbuilding. Her unchanged target price of $1.54 remains based on its 5-year average P/BV of 0.8 times.
As at 4.15pm, shares in Yangzijiang were up 3 cents or 2.8% higher at $1.11.
