Excerpts from DBS report
Analyst: Pei Hwa HO
| Pullback presents buying opportunity |
| Investment Thesis: Reiterate BUY; TP S$1.95. Recent price weakness following the 3Q business update presents a buying opportunity.
Share price re-rating during an upcycle is typically driven by order momentum, followed by conversion of these orders into earnings growth. |
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Best proxy to newbuild supercycle. After record-high order wins of US$7.4bn YTD (48% higher than US$5bn in the last boom in 2007), Yangzijiang’s yards are full through 2024.
While order momentum should slow down, it is expected to stay at elevated levels of US$2.5-3.0bn per annum.
Earnings are set to grow at a 3-year CAGR of 18%, backed by a US$8.9bn record orderbook with gross margin improvement to 20% (from 13% in 3Q21).
Catalysts to drive share price closer to our TP include:
 Pei Hwa Ho, analysti) optimism on the macro economy and shipping market; ii) sequential earnings growth, underpinned by revenue and margin expansion; iii) a potential increase in the dividend payout; and v) an improving ESG score – potential spin-off of investment arm and gaining traction in the dual fuel and LNG carrier markets. |
Valuation:
Our target price (TP) of S$ 1.95 is based on sum-of-parts (SOP), pegged to 10x PE on FY21F shipbuilding earnings, 0.8x P/BV for investments and 1.0x P/BV for its marked-down bulk carrier/tanker fleets.
This translates into 1.08x P/BV (0.5 SD above its 5-year mean of 0.9x).
Where we differ:
Market has over-penalised Yangzijiang for its debt investments, most of which are backed by collateral of 1.5-2.5x.
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Key Risks to Our View: |
Full report here.
