Yangzijiang Shipbuilding - Raining New Orders

Date: 01/07/2021

Source  :  UOB KayHian
Stock  :  YZJ Shipbldg SGD       Price Target  :  1.90      |      Price Call  :  BUY
        Last Price  :  0.95      |      Upside/Downside  :  +0.95 (100.00%)

  • Merely six days after announcing a US$715m order win, Yangzijiang Shipbuilding (SGX:BS6) has topped that with yesterday’s announcement of US$871m worth of orders, which brings its year-to-date order wins to a record US$5.59b in 2021. Containerships continue to comprise the bulk of these orders, and we note that delivery dates for the larger vessels are being pushed to 2024.
  • We maintain our BUY rating for Yangzijiang Shipbuilding, as we believe the containership construction upcycle remains intact, and have upgraded our target price for Yangzijiang Shipbuilding to S$1.90 (previously S$1.76).

What’s New

  • Yesterday, Yangzijiang Shipbuilding announced new orders worth US$871m comprising:
    1. six 15,000TEU containerships,
    2. three 3,300TEU containerships, and
    3. two 82,300DWT bulk carriers.
  • It was notable that the ultra-large 15,000TEU containership order came from Seaspan, which is one of Yangzijiang Shipbuilding’s oldest clients.

Delivery dates are being pushed out.

  • As can be seen by the delivery date of 1H24 for these vessels, Yangzijiang Shipbuilding has ‘run out of room’ for delivery in 2023, especially for the ultra-large containerships. Even the smaller 3,300TEU containerships, which were ordered by a domestic China-based shipowner, have delivery dates starting from 2H23 and into 1H24.
  • On the other hand, bulk carriers that are easier and faster to construct can still be delivered in 1H23.

A record year.

  • Year-to-date order wins for Yangzijiang Shipbuilding now total US$5.59b for 100 win expectation to US$6.5b for 2021 and US$4.0b for 2022 (previously US$3.5b).
  • Yangzijiang Shipbuilding’s orderbook now stands at US$7.72b for 160 vessels.

The containership upcycle appears sustainable

  • The containership upcycle appears continue to flow to shipbuilders in 2021 and 2022.

Stock Impact

  • Apart from yesterday’s large order, Yangzijiang Shipbuilding announced a similarly large order merely six days ago for 14 vessels worth a total of US$715m. The order comprised one 9,150DWT chemical tanker, one 29,800DWT self-loading bulk carrier, two 2400TEU containerships, five 3500TEU containerships, two 11,800TEU containerships, and three 40,000m3 LPG vessels.
  • Unfortunately Yangzijiang Shipbuilding was less specific with delivery dates, only disclosing that deliveries will be between 2022-24.
  • We were certainly heartened to note that Yangzijiang Shipbuilding continues to win orders for containerships which are relatively higher-margin vessels for the company. Importantly, the company won an order for LPG vessels, which is a first for the company, and is thus encouraging to see it breaking into a new market segment.

Increased levels of scrapping.

  • Small and medium-sized containerships have note from Yangzijiang Shipbuilding’s orderbook for containerships that it has seen meaningful order flow for both the small and large vessels.

Earnings Revision / Risk

Upgrading earnings for 2021-23.

  • We have raised our earnings forecasts for Yangzijiang Shipbuilding by 2-11% for 2021-23F to take into account yesterday’s order wins as well as the order wins garnered by the company last week.

Valuation / Recommendation

  • Maintain BUY on Yangzijiang Shipbuilding with an view, especially given our expectation for the company to experience ROE expansion from 9.1% in 2021 to 13.3% in 2023.

Recent share price retracement is an opportunity, in our view.

  • Since the beginning of May 21, Yangzijiang's share price has fallen ~8% from more order wins to come in our view.

Share Price Catalyst

  • Continued new order wins, especially from China-based clients.
  • Better returns on its debt investments portfolio.

Source: UOB Kay Hian Research - 1 Jul 2021

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