The analysts at CGS International (CGSI) and DBS Group Research are keeping their “add” and “buy” calls at unhanged target prices of $3.20 and $2.88 respectively on Yangzijiang Shipbuilding following the company’s 9MFY2024 ended Sept update.
In the 3QFY2024, the company announced that it has secured US$11.64 billion ($15.38 billion) of new orders year-to-date (ytd), implying an around US$3.14 billion clinched from September to November.
As of Nov 7, Yangzijiang’s order book stood at US$22.1 billion, or 224 vessels.
Meanwhile, Yamic, the company’s joint venture (JV) with Mitsui, has on its part built up an order book stood at US$3.19 billion with high-end gas carriers accounting for 52% of the value.
Lim and Kande write in their Nov 7 report: “The ytd order win trend is largely in line with our forecast of US$11.3 billion for 2024. We keep our FY2025 and FY2026 order win forecasts at US$5.2 billion and US$5.2 billion.”
New orders secured in the 3QFY2024 include around US$2.4 billion of 12 units of 168,000 twenty-foot equivalent unit (TEU) container vessels from its new customer, Hapag Lloyd.
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“These vessels will be liquefied gas dual-fuel propulsion and ammonia-ready, scheduled for delivery between FY2027 to FY2029. We estimate the contract value at around US$2.4 billion, based on recent newbuild containership prices reported by Clarksons,” write the analysts.
They add that these vessels will be built in the upcoming new yard in Xinqiao Park of the Jingjiang Economic and Technological Development Zone, which is likely to be approved by the local government.
“We believe there are still slots for 2028 delivery from existing yards and 2027 delivery for the new yard.”
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Yangzijiang delivered 22 vessels in the 3QFY2024, on a ytd basis, 57 vessels.
On this, Lim and Kande write: “This is 90% of its targeted 63 vessel deliveries in 2024. We believe 2HFY2024 net profit could be stronger h-o-h on the back of this.”
They add that the company has achieved US$3 billion net profit in the first half.
While the analysts will presently keep their FY2024 net profit forecast of US$5.8 billion, they will revisit their modelling assumptions following the Nov 8 analyst briefing.
They also expect Yangzijiang's recent inclusion in the MSCI Singapore Index to draw more investor interest.
Key catalysts noted by Lim and Kande include stronger-than-expected margin from a low steel cost environment, a favourable foreign exchange (forex) environment as well as stronger-than-expected order wins and expected margin expansion.
“We see downside risks from a surge in steel costs, order cancellations, and any unfavourable policy action against the Chinese shipbuilding industry by the newly elected US government,” concludes Lim and Kande.
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Meanwhile, the team of analysts at DBS Group Research note that Yangzijiang remains one of their top picks in the industrial space, in view of the company’s order book-backed double-digit growth, strong net cash of around 80 cents per share, decent dividend yield of 3.5% with growth and potential upside to payout ratio.
They add that Yangzijiang’s ESG improvement has been underappreciated.
“Aligning with the green transition trend, clean energy vessels account for around 84% of new order won ytd and 75% of orderbook. In addition, we continue to see upside potential to margins and earnings growth ahead with further increase in productivity and capacity expansion.”
As at 3.47 pm, shares in Yangzijiang are trading 10 cents higher or 3.88% up at $2.68.
