Analysts from DBS Group Research and Citi Research have kept their “buy” calls on Yangzijiang Shipbuilding after the group’s earnings for the 1HFY2024 ended June 30 beat their estimates.
Yangzijiang’s 1HFY2024 earnings surpassed DBS analyst Ho Pei Hwa’s estimates by 20% after its net profit surged by 77% y-o-y and 29% h-o-h to RMB3.06 billion ($564.9 million).
The group’s shipbuilding margins, at 25.9% for the period, also beat her expectations.
As such, Ho has raised her earnings estimates for the FY2024 and FY2025 by 25% and 21%. Accordingly, her target price is also raised to $2.88 from $2.75 previously.
Citi Research analyst Luis Hilado has also increased his target price estimate to $3.14 from $2.45 previously after Yangzijiang’s earnings significantly surpassed its FY2024 guidance.
Following the group’s robust order book and ebitda margins in the 1HFY2024, Hilado has upped his ebitda forecasts for the FY2024, FY2025 and FY2026 by 15%, 8% and 3% respectively. The analyst has also increased his profit forecasts for the three years y 17%, 8% and 1% respectively. “With low steel prices (guided to have bottomed out) and stable exchange rates, the high gross and ebitda margins recorded in 1HFY2024 are likely to prevail and hence we have raised ebitda and profit forecasts.
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However, any upside seen in the FY2025 is partly tempered by the analyst’s assumption of higher depreciation and amortisation (D&A) charges from RMB5 billion expansion and upgrade spend over one to two years.
“With management indicating the bulk of new order wins more substantially impact FY2027 onwards, we have tempered our FY2024 – FY2026 revenue assumptions,” he says.
“However, with revenue visibility possibly even reaching FY2029 (from mid-FY2028) when 2HFY2024 results are disclosed, we believe the stock continues to have legs to support a re-rating,” he adds.
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In Ho’s view, Yangzijiang’s advancement towards environmental, social and governance (ESG), carrier orders for its liquefied natural gas (LNG) vessels and earnings growth are key catalysts.
“Yangzijiang’s improving corporate governance and pivot towards cleaner vessels such as dual-fuel containerships and gas carriers, which now account for 70% of orderbook, could draw more interest from ESG funds,” she notes.
“Securing more orders for LNG carriers allows Yangzijiang to scale up and strengthen its market positioning. The LNG carrier market has high technical barriers to entry and could provide Yangzijiang the next leap of growth,” she adds.
Finally, she notes that the market has yet to fully appreciate the group’s earnings growth potential from its record order backlog as well as potential yard expansion of 20%.
“Yangzijiang’s yards are full through 2026 with an orderbook of US$20.15 billion ($26.67 billion). This is expected to propel an earnings compound annual growth rate (CAGR) of 26% in the next two years, driven by both revenue growth and margin expansion, as 65% of its orderbook is made up of containership orders that command higher value and margins,” says Ho.
“We expect further uplift in its orderbook, boosted by potential orders for large LNG carriers,” she adds.
Meanwhile, Hilado remains positive on the group’s outlook given its strong order and revenue visibility well into the long-term, thereby driving healthy growth for at least the next three years.
Shares in Yangzijiang Shipbuilding traded 30 cents higher or 12.61% to $2.68 before the mid-day break on Aug 13.
