Excerpts from CGS-CIMB report
Analysts: Lim Siew Khee & Izabella Tan
Yangzijiang Shipbuilding: Building visibility till mid-2025
|■ YZJSB has secured US$3.2bn worth of new orders, comprising 10 bulk carriers and 12 LNG-dual-fuel containerships.
■ YZJSB is one of our country top picks. We like it for having secured 25% FY23F earnings growth from execution of a record-high orderbook.
US$2.51bn orders in the bag
● We previously highlighted that according to industry news, YZJSB was in the running to secure orders for 12 16,000 TEU LNG dual-fuel containerships from Mediterranean Shipping Co (MSC) worth US$2.16bn, and four 32,000DWT bulk carriers from Navibulgar worth US$128m.
● Today, YZJSB announced new contracts worth c.US$2.51bn for 22 vessels – six 66,000DWT bulk carriers, four 32,000DWT bulk carriers, and 12 16,000TEU LNG dualfuel containerships.
It did not disclose any client names but we believe they could have included MSC and Navibulgar. According to Clarksons, six of the 66,000DWT bulk carrier orders were secured by Yangzi-Mitsui Shipbuilding from Jaldhi Overseas.
● These vessels are scheduled to be delivered progressively from 2024 to mid-2025. We believe the earliest delivery slots for future orders could be stretched till 2025F.
● We expect news of maiden LNG vessel order wins soon, given YZJSB’s recent success in obtaining a licence from containment systems specialist GTT for the construction of large LNG vessels. Korean peers (Daewoo DSME and Samsung HI) have large LNG vessel deliveries scheduled for 2025/2026. We believe YZJSB’s availability in 2025 could be an advantage to secure new orders as regional yards are full.
● The new orders lift YZJSB’s YTD order win to c.US$3.6bn for 40 vessels, exceeding its FY22 target of US$2.0bn. This is also above its pre-Covid (2009-2020) historical average annual order win of US$1.4bn.
Margin could improve on lower steel prices
● Steel prices have declined 40% yoy to an average of c.Rmb4,000 per metric tonne by end-Sep.
We see upside to our FY22-FY23F gross margin forecasts of 13% and 16% for YZJSB as it could benefit from easing cost pressure against the execution of higher value contracts secured in 2021 (with higher steel prices assumptions).
● YZJSB currently trades at 7x CY23F P/E and 1.29x CY22F P/BV vs. its 2021-24F EPS CAGR of 16% CY23F ROE of 16%.
Re-rating catalysts: faster-than-expected delivery of vessels, and improving economic environment in China.
Key downside risks: order cancellations, and spike in steel cost impacting margins.Maintain Add, TP remains at S$1.63 (CY23F P/E of 10x, 2-yr avg)
Full report here.