Yangzijiang Shipbuilding - Pay Up for the Slot

Date: 24/06/2021

Source  :  CIMB
Stock  :  YZJ Shipbldg SGD       Price Target  :  1.63      |      Price Call  :  BUY
        Last Price  :  0.95      |      Upside/Downside  :  +0.68 (71.58%)

  • Yangzijiang Shipbuilding (SGX:BS6) is still able to take on orders for 2022-23 delivery with better pricing as seen in the latest win worth US$715m. Order book is at a record US$7.3bn.
  • To manage yard tightness, Yangzijiang Shipbuilding could subcontract portions of work to smaller fabricators. Margin should be healthy as steel price pressure eases.
  • Our target price of S$1.63 for Yangzijiang Shipbuilding is based on 1x P/BV or +1 standard deviation from its 6-year average. Stronger orders are catalysts while rampant order cancellation is a key risk.

US$715m Total Order, ~US$250m for YAMIC’s Breakthrough in LPG

  • Yangzijiang Shipbuilding announced contract wins of US$715m, bringing order wins to US$4.72bn year-to-date and order book to US$7.3bn, higher than the 2008 peak of US$6.9bn. Deliveries of these vessels are over 2022-2024.
  • In this order, Yangzijiang Shipbuilding’s JV Yangzi Mitsui Shipping (YAMIC) also saw its first breakthrough in LPG vessels, securing the first batch of 3 units from a German ship owner. We estimate the contract value for these LPG vessels to be ~U$250m, bringing YAMIC’s order book to ~US$750m.
  • The remaining ~US$465m orders to be built by Yangzijiang Shipbuilding’s fully owned yards comprised of 1 unit of 9,150DWT chemical tanker, 1 unit of 29,800DWT selfloading bulk carrier, 2 units of 2,400TEU containerships, 5 units of 3,500TEU containerships and 2 units of 11,800TEU containerships.

Managing Yard Tightness and Charging Higher for Slots

  • To manage the Shanghai Containerized Freight Index (SCFI) remaining high at a record level of ~3,700, we think shipping clients could be pressed for slots and will pay to secure the space.
  • We are keeping our shipbuilding gross concerns of margin compression.

Reiterate ADD and Target Price of S$1.63; Upside to 2022 Outlook

    • The unabated rise in the shipping index and momentum of orders in 1H21 could see Yangzijiang Shipbuilding's management lifting its sharp appreciation in steel price and RMB.

    Source: CGS-CIMB Research - 24 Jun 2021

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