Excerpts from analyst's report
» First orders for LNG carriers in the bag
Yangzijiang has secured newbuild orders from new customer JHW Engineering & Contracting Limited (JHW), a subsidiary of JACCAR Holdings that owns EVERGAS, a world leader in ethylene and ethane gas transportation.
The contract is to build two 27,500CBM Liquefied Natural Gas (“LNG”) carriers for US$135m.
The contract price of US$67.5m/unit appears higher than its Chinese peers and comparable to Korean rivals who typically dominate over 70% of the market.
We understand that payment terms are also decent, on par with other shipbuilding contracts, where payments up to 40% based on milestone completions are received prior to delivery.
If these orders are executed well, we can expect more orders to come from JHW, which is embarking on a fleet expansion program.
The LNG carrier market is among the few bright spots in the shipbuilding sector as barriers to entry are high due to the complexity of the vessel - greater precision and higher technical content.
Meanwhile, demand is growing rapidly with more LNG plants starting up in the United States, Australia and Russia to feed Asia's huge demand for gas.
Over 200 LNG carriers are expected to be added by 2020, of which over 20% are set to be built in China to deliver gas to its ports. While Yangzijiang has to scale a learning curve, we find comfort that:
1) Yangzijiang’s R&D team has successfully developed the design and engineering capability on LNG carriers 1-2 years back.
2) The vessels will be built at its New Yangzi Shipyard, which has the best project team and skilled labour force in the group.
3) Experienced talent will be hired to ensure project execution.
4) There is sufficient lead time of 24-30 months before delivery in 2017.
Yangzijiang is the best proxy to the shipping and shipbuilding recovery.
Valuation is undemanding at 6x FY15F PE and 0.9x P/BV, and the stock offers a decent 4% yield. ROE is estimated at 16%. FY14 results will be released on 27th Feb before the market opens.
We expect its net profit to grow 15% y-o-y to Rmb3.56bn, potentially lifting DPS from 5.2 Scts in FY13 to 5.4 Scts.
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