However, the company’s shipping segment saw weaker numbers: revenue for FY2025 was down 8.1% y-o-y and, no thanks to softer bulk carrier rates, it suffered a “significant” drop in margins to 28.4% from 43.3%. Higher repair and maintenance costs didn’t help either.
Nonetheless, this remains a profitable business for Yangzijiang and one which helped diversify its earnings base.
In line with the better bottom line, the company plans to pay a dividend of 20 cents, equivalent to a payout ratio of 50%, and implying a dividend yield of 5.7% based on Yangzijiang’s Dec 31 closing price of $3.48. In contrast, the company paid 12 cents per share in FY2024. The payout for FY2025 was a “positive surprise” for CGS International analysts Lim Siew Khee and Meghana Kande.
For FY2026, the company has set an order-win target of $4.5 billion, with some contracts already in the final stages of negotiation. At the same time, enquiries have been received for smaller container ships with delivery targeted for 2029 and 2030.
See also: Narrower discounts to NAV warrant 10% higher target prices for HK developers, landlords: BofA
Lim and Kande are expecting more revenue recognition in the future. They estimate that some US$14.6 billion in orders secured back in FY2024 are yet to be recognised. With the expansion of its Hongyuan yard, the company should be able to enjoy additional revenue growth.
They estimate that with steel prices holding steady below RMB3,300 per tonne, Yangzijiang should be able to sustain its 35% gross margin in its shipbuilding activities into the current FY2026, especially as the company begins to recognise higher-value contracts.
However, they note that average selling prices for container ships in FY2025 were down 5% to 10% and could further dip this year due to softer demand and stiffer competition. “These cumulative reductions could pressure margins from FY2028 onwards as projects on a weaker pricing cycle start generating revenue, in our view,” state Lim and Kande.
See also: Continued strength of Hong Leong Asia’s multiple engines to power earnings upswing
Nonetheless, they are not only reiterating their “add” call but have also raised their target price to $4.95 from $4.51, based on a higher 11 times FY2027 valuation multiple, up from 10 times. They like the company’s earnings growth prospects, backed by its US$22.4 billion order book, and note that the counter is still trading at a discount to its global peers.
Re-rating catalysts include stronger-than-expected order wins and depreciation of RMB versus the US dollar, while downside risks include order cancellations and a surge in steel costs.
Separately, Ho Pei Hwa of DBS Group Research flags that the FY2025 shipbuilding margins at 35.1% is deemed by “exceptionally high” by Yangzijiang’s management, given how the industry is now in a “rare” upcycle. Barring unforeseen big swings in the US dollar, in which the company books its orders, and renminbi, in which it incurs some of its operating costs and is also its reporting currency, the gross profit margin will “likely” sustain this year and next, but should normalise over the medium term.
Ho notes that shipbuilding orders have passed their 2024 peak, but Yangzijiang remains an attractive counter to own. Along with her “buy” call, she has raised her target price to $4.55 from $3.80, based on 2.6 times P/BV, in line with a 15% discount to global peers.
In line with earnings growth, Ho is flagging Yangzijiang’s growing attractiveness as a dividend stock. The company’s dividend policy is to maintain a payout ratio between 30% and 50% of its earnings. Still, Ho notes that management has indicated a “strong willingness” to keep the payout range at the upper end, so long as earnings remain strong and capital needs remain manageable. Ho figures that at a payout ratio of 50%, the company could be paying between 22 cents and 24 cents a year, implying a yield of 5.5% to 6%.
Adrian Loh of UOB Kay Hian, similarly cheered by Yangzijiang’s inexpensive valuation, quality earnings, and dividend growth potential, has raised his target price from $4.10 to $4.60. He has applied a 10 times valuation multiple to FY2027 earnings, which is two standard deviations above the 10-year average. “We highlight that Yangzijiang is the only stock in the Straits Times Index that currently trades at a single-digit P/E multiple but still delivers a yield of more than 5% and generates an ROE of more than 26%,” says Loh.
