Yangzijiang Shipbuilding - Overachiever

Date: 02/08/2021

Source  :  CIMB
Stock  :  YZJ Shipbldg SGD       Price Target  :  1.91      |      Price Call  :  BUY
        Last Price  :  0.95      |      Upside/Downside  :  +0.96 (101.05%)

  • Amidst record-high freight rates, Yangzijiang Shipbuilding clinched another US$1.08bn of new contracts, bringing year-to-date orders to US$6.67bn and order book to US$8.74bn.
  • Earnings per share (EPS) forecast raised by 1-26% for FY21-23F as we lift our 2021 order win forecast by 60% to US$8bn (from US$5bn), offset by lower gross margins for steel price effects.
  • Yangzijiang's target price is upgraded to S$1.91 (SOP valuation). Yangzijiang's share price trades at a ~38% discount to the Korean shipbuilders on average despite its stronger margins.

Seaspan Order for 2023-2024 Delivery

  • Yangzijiang Shipbuilding (SGX:BS6) has won a firm US$1.08bn of contracts, bringing year-to-date order wins to US$6.67bn and order book to US$8.74bn, providing earnings visibility till 2024. Included in the orders are 2 mark Yangzijiang Shipbuilding’s penetration into the Korean-dominated LNG dual-fuel engine vessel market.

YTD Order Above Management Guidance

  • The orders of 112 vessels clinched year-to-date have exceeded management’s guidance of US$5bn. Accordingly, we raise our order expectations for 2021 to US$8bn, with another ~US$1bn by year-end. We keep our 2022 order forecast at US$2.3bn, which we believe could surprise on the upside if freight rates remain at high levels.

Yangzijiang's 2Q21 Earnings Preview

  • Yangzijiang Shipbuilding reports 2Q21 results on 5 Aug (after market closes). We estimate 2Q21 fleet of bulk carriers.
  • We estimate Yangzijiang Shipbuilding's 2Q21 net profit was in the range of RMB680m-710m (-10-12% q-o-q).

Re-iterate ADD With Higher Target Price; Yangzijiang Is Cheaper Than Korean Shipbuilders

    • We think the strong orders year-to-date should lead to positive share price movement.
    • Yangzijiang Shipbuilding trades at a steep discount to the Korean shipbuilders - Korea Shipbuilding & Offshore’s (KSOE; 009540.KS, ADD, Target price: W200,000) 0.85x CY21F P/BV and Hyundai Mipo Dockyard’s (HMD; 010620.KS, ADD, Target price: W125,000) 1.5x CY21F P/BV - although KSOE secured key catalysts.
    • A sudden plunge in freight rates is a key risk.

    Source: CGS-CIMB Research - 2 Aug 2021

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