DBS Group Research has reiterated its "buy" call and $1.90 target price for Yangzijiang Shipbuilding after it announced new contracts reportedly worth around US$1 billion.
The contracts are to build six 13,000 TEU methanol dual-fuel containerships for Ocean Network Express (ONE).
In its Jan 18 note, DBS estimates that the total contract value could be worth over US$1 billion, assuming the current market price of around US$170 million for similar vessels, reported on Clarksons.
DBS says that the sizeable new wins would make up over a third of the company’s annual order target of US$3 billion, which is very promising given it is only 2-3 weeks into the new year, raising Yangzijiang’s order win prospects.
Yangzijiang’s order book stands at an all-time high of US$15 billion, which implies revenue visibility for the coming four years.
As the yards are now "very full" for the next 3 to 4 years, the vessels are scheduled to be delivered from 2027 onwards as yards are very full.
According to DBS, the company is eyeing capacity expansion in the vicinity of its existing yard facilities.
"Besides adding on shipbuilding capacity, this could also pave the way for new retrofitting businesses that are expected to see demand surge from 2025 upon availability of main engine supply.
"This would call for earnings upgrade as the market has yet to factor in capacity expansion. We also expect potential earning upside surprise in the upcoming results, especially on the shipbuilding margin front," says DBS.
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DBS notes that the customer, ONE, is jointly owned by the Japanese shipping Lines Nippon Yusen Kaisha, Mitsui O.S.K. Lines, and K Line.
The way DBS sees it, Yangzijiang’s partnership with Mitsui E&S shipyard seems to be bearing fruit, opening up the Japanese market with partner Mitsui bringing in Japanese designs and construction technology.
DBS' target price of $1.90 is based on 1.7x FY2024 P/B and an implied PE of 10.2x.
"Yangzijiang is a prime beneficiary of decarbonisation and clean vessel trends in the shipping market. It remains focused on higher value-add dual-fuel vessels, tankers and possibly pure car, pure truck carriers (PCTC). It offers a decent dividend yield of 4%," says DBS.
