• Yangzijiang Shipbuilding's stock price has corrected from $1.72 three weeks ago to $1.52 but its record orderbook and positive 3Q business update support an upturn in the stock. 

• 3 analysts have put out reports post-3Q robust business update. DBS Vickers, UOB KH and CGS-CIMB have price targets of $1.90, $1.92 and $1.96, respectively.

• Yangzijiang's orderbook stood at RMB14.8 billion as of 3Q2023. This is the highest in the company's history, which means that its future financial performance is on strong footing for the next 2-3 years.

• With a market cap of around S$6 billion currently, the stock is trading at 8-9X PE -- which is not an unattractive valuation. Read more of what the CIMB analyst has to say ...

Excerpts from CGS-CIMB report

Analyst: Lim Siew Khee

Yangzijiang Shipbuilding
Pursuing high-value oil tanker orders

■ YZJ won orders worth US$770m for six LPG carriers and eight oil tankers, bringing YTD order wins to US$6.5bn. Its orderbook stands at US$14.8bn.


Share price: 


■ No new containership orders due to higher-than-expected methanol costs; management expects liners to refocus towards LNG dual-fuel ships.

■ Retain Add with an unchanged TP of S$1.96, based on a 50% premium to regional yards’ 1.3x average CY23F P/BV

plantmodel info9.14

Rebound in oil tanker market driving order wins

In 3Q23, Yangzijiang Shipbuilding (YZJ) won US$770m of new orders for 14 vessels, including six 40K CBM LPG carriers, six 50K DWT MR oil tankers, and two 75K DWT LR1 oil tankers, for delivery in 2026 and 2027.

We expect 2H23F orders of US$1bn-1.5bn. Expectations of a rebound in charter rates could be driving the demand for tankers, in our view.

Low steel input costs and favourable forex trends continue to support margins. We expect overall gross margins of 19.5%/23%/24% for FY23F/24F/25F.

Clarksons data shows that the 1-year time charter rate for MR tankers fell from their recent peak of US$31,250/day in Mar 2023 to $24,000/day in Jul 2023, but have been trending upwards to the current level of US$26,000/day.

Management noted that the current tanker charter rates are at a good level to support customers’ ship costs, but future ship demand would depend on further developments in the global geo-political situation


 No delays to existing orders, but liners may rethink future strategy

YZJ delivered 11 vessels in 3Q23 and confirmed that there have been no requests for delivery delays or cancellations of existing orders.

From its conversations with customers, YZJ noted that containership liners are starting to see higher-than-expected methanol prices driven by methanol’s high production costs and persisting supply chain issues.

Management expects owners to refocus on LNG dual-fuel vessels due to these ships’ reliable technology and c.25-year expected lifespan.

Margins for both types of vessels are similar, according to YZJ.

Low steel input costs and favourable forex trends continue to support margins. We expect overall gross margins of 19.5%/23%/24% for FY23F/24F/25F.


 LNG carriers are a lower priority

With its yards full till 1H2027F and newbuild prices broadly stable at a favourable level, YZJ plans to stay focused on high-value vessels, such as dual-fuel containerships and tankers, and may consider new orders for PCTC vessels.


Management continues to target FY2024F order wins of US$3bn.

LNG carrier orders are of lower priority to YZJ due to the longer construction timelines (relative to those of containerships) affecting overall efficiency.

Management continues to target FY2024F order wins of US$3bn.

YZJ is still awaiting government approval to acquire land adjacent to its existing yards for its capacity expansion plans; management expects a positive outcome but did not guide towards a confirmed timeline.

 Reiterate Add, with a TP of S$1.96


OngKhangChuenLim Siew KheeOur TP of S$1.96 is based on a 50% premium to regional yards’ 1.3x average CY23F P/BV, given YZJ’s stronger margin track record.

Re-rating catalysts: stronger margins/orders improving profitability.

Downside risks: sharp rise in steel costs affecting margins, order cancellations, weakening earnings visibility, and a steep decline in freight rates impacting potential new order wins and chartering contracts.


Full report here

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