CGS International (CGSI) analysts Lim Siew Khee and Meghanan Kande are keeping their “add” call on Yangzijiang Shipbuilding at an unchanged target price of $3.20 following the company’s 3QFY2024 ended Sept update.
Yangzijiang Shipbuilding has guided for a higher FY2025 order win target of over US$4.5 billion ($6.02 billion) due to the planned capacity addition in Xinqiao Park of the Jingjiang Economic and Technological Development Zone, which will likely add capacity for 12 units of mid-sized vessels per annum (p.a.).
“We lift our order win targets for FY2025/FY2026 to US$5.5 billion p.a. from US$5.2 billion previously. We also note that there are options from the recent contracts awarded by Hapag Lloyd and Maersk for conversion by 1QFY2025,” write Lim and Kande in their Nov 8 report.
As steel prices continue to hover at around RMB3,500 ($648) per metric tonne, Yangzijiang Shipbuilding sees limited risk from potential competing demand for steel from a revival of the Chinese real estate sector.
The company has also indicated that margins for 3QFY2024 were slightly improved from the 1HFY2024.
Meanwhile, it has secured slots for all engines required to execute its orderbook. The deposit trend remains at 10% to 15% for new contracts given the strong balance sheets of most ship liners.
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The analysts write: “In our view, FY2025 margins could dip due to a shift in delivery mix towards oil tankers.”
Ytd, Yangzijiang Shipbuilding has delivered 57 vessels, including 37 containerships and one oil tanker.
Notably, oil tanker average selling prices (ASP) are generally lower in the range of US$50 million to US$80 million, but the company has indicated that both vessel types typically have a margin difference of 5 percentage points (ppts).
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“64 oil tankers in Yangzijiang’s current orderbook are scheduled for delivery by FY2027, which would see tankers taking up 32% to 43% of the delivery mix. We refine our shipbuilding gross margin forecasts to 27%, 26% and 27% respectively for FY2024, FY2025 and FY2026,” write Lim and Kande.
Catalysts noted by the CGSI analysts include capacity expansion and stronger order wins, while downside risks include a surge in steel costs, order cancellations and lastly, unfavourable policy action against the Chinese shipbuilding industry by the newly elected US government.
As at 12.22 pm, shares in Yangzijiang Shipbuilding are trading 2 cents higher or 0.78% up at $2.59.
