T Rowe Price, a long-time shareholder of Yangzijiang Shipbuilding (Holdings), on March 6 sold nearly 8.2 million shares at around $1.77 each on the open market, cashing in some $14.5 million. This leaves the US asset manager with still more than 235.6 million shares or a stake of 5.96%, down from 6.17% previously.
The sale by T Rowe Price came around a week after the China-based but Singapore-listed shipbuilder on Feb 27 reported better-than-expected earnings for FY2023, prompting a slew of upgrades in target prices by already bullish analysts on this counter.
According to filings, T Rowe Price’s previous sales of Yangzijiang shares before the latest transaction were back on Jan 27, 2023, when it sold 4.81 million shares at $1.2844 each and Oct 20, 2022, when it sold just over 19.3 million shares at $1.216 each.
For FY2023 ended Dec 31, 2023, revenue increased by 16.5% over the preceding FY2022 to reach RMB24.1 billion ($4.6 billion) but thanks to better margins, earnings increased 57% y-o-y to a record RMB4.1 billion. The company has declared a final dividend of 6.5 cents, up from 5 cents per share in FY2022.
As at Dec 31, Yangzijiang has an order book of US$14.5 billion ($19.3 billion) for 182 ships, which includes contracts won for 97 vessels worth US$7.1 billion in FY2023.
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Upside to stock price
Following the earnings report, UOB Kay Hian’s Adrian Loh raised his target price from $1.92 to $2.19 while Ho Pei Hwa of DBS Group Research deems the stock worth $2.10, up from $1.90, suggesting there is further upside for the stock that has already gained more than a third in the preceding 12 months.
The sale by T Rowe Price came just a week before US President Joe Biden, who is set for a rematch in November with Donald Trump, pledged to look into a petition from a group of unions asking his administration to review China’s subsidies for shipbuilders.
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The petition was filed by a coalition of five unions urging for action to be taken to address “non-market policies” by Beijing to dominate the commercial shipbuilding industry.
According to The Financial Times, the petitioners want a variety of penalties and remedies to level the global playing field in shipbuilding and stimulate demand for commercial vessels built in the US. These include port fees on ships built in China docking at US ports and the creation of a Shipbuilding Revitalisation Fund to help the domestic industry and its workers.
China’s shipbuilding industry, according to the petition which was cited by FT, has enjoyed policy loans from state-owned banks, equity funding and debt for equity swaps, below-market rate steel inputs, tax preferences and grants from export agencies, and also protection from foreign ownership.
How the US fell behind
According to the United Nations Conference on Trade and Development, China was the world’s largest shipbuilder in 2022, with a gross tonnage of 25.9 million tonnes, followed by South Korea and Japan in the distant runner-up and number three positions. The US, in contrast, built just 73,000 tonnes in the same year.
According to FT, back in 1975, the US shipbuilding industry was the top worldwide in terms of total capacity. That year, it built more than 70 commercial ships. Half a century later, its global ranking has plunged to 19th place, with less than 1% of the worldwide tonnage originating from US yards.
In her March 14 note, DBS’s Ho is of the view that it is probably too early to have a conclusive analysis of the impact on the maritime industry at this stage.
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“Hypothetically, in the imminent term, if port charges were to be imposed on China-built vessels, it would first hit shipping companies and possibly result in higher shipping costs to be borne by consumers.”
If so, this could also cast uncertainty over potential longer-term structural changes in shipbuilding industries especially for Chinese players such as China State Shipbuilding Corporation, a state-owned enterprise, and also Yangzijiang Shipbuilding.
However, she does not expect a material impact on key Chinese shipyards in the near to medium term as yards are full for the next three to four years. Ho has kept her “buy” call and $2.10 target price on the stock.
