SINGAPORE (June 15): DBS Research Group is reiterating its “buy” call and target on Yangzijiang Shipbuilding at $1.40. This gives the counter a 43% upside from its 98-cent close on June 12, analyst Ho Pei Hwa says in a June 15 flash note.
“Stock is attractive at 0.6x P/BV and 7x FY20F PE despite offering 8-9% ROE and 4% dividend yield,” she elaborates.
Her move follows reports from Tradewinds – a publication focused on shipping and maritime news – that the shipbuilder has secured 12 new orders amounting to US$353 million ($492.5 million) for the construction of bulkers and multi-purpose vessels for Shanghai Ganlu and Tiger Group.
Tiger Group is Yangzijiang’s long-standing customer. Its most recent orders include two 14k TEU containerships made in mid-March, with options to build eight similar units worth up to US$920 million to be exercised this year.
The latest 12 contracts are pending final negotiations and down payment. Upon conclusion, they are expected to boost Yangzijiang’s year-to-date wins to some US$770 million. This will make up between 38-51% of its order book target of US$1.5 – US$2.0 billion, Ho points out.
Calling these order wins “remarkable”, she adds that these gains stem from “Yangzijiang’s industry leadership and competitive edge”.
“Yangzijiang has demonstrated its resilience during industry downturns with decent profits and dividends, supported by a strong balance sheet”.
Ho is now looking at the shipbuilder gaining from industry developments, such as the US$19 billion mega LNG carrier orders awarded by Qatar Petroleum to the Korean Trio.
The deal will see over 100 units of LNG carriers being delivered till 2027.
“This is expected to fill up on average 20-30% of Korean yards capacity over the next 7-8 years, which would ease some pressure to fill yard capacity and thus reduce overall industry competition for new orders,” observes Ho.
As at 2.24pm, shares at Yangzijiang were down 3.5 cents or 3.6% to 94.5 cents.
